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May 1, 12:40 AM EDT

Japan inflation edges up as BOJ keeps policy unchanged


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TOKYO (AP) -- Japan's core inflation rate edged up in March and unemployment eased slightly, according to data released Friday, offering glimmers of promise for the world's No. 3 economy as it struggles to get growth back on track after years of stagnation.

Though a decline in factory output and other key measures were less encouraging, the central bank kept its ultra-loose monetary policy unchanged in a policy meeting Thursday. Some investors and analysts expected additional stimulus to be announced.

The central bank governor, Haruhiko Kuroda, acknowledged that his target of 2 percent inflation, excluding the impact of an April 2014 increase in the sales tax to 8 percent from 5 percent, remains elusive. He said actual inflation is flat at 0 percent and it might take three years, instead of the two years he originally aimed for, to reach that goal.

Core inflation, excluding volatile food prices, ticked up to 2.2 percent in March from 2.0 percent in February, the government reported. It said that excluding both food and energy, the consumer price index rose 2.1 percent, compared with 2.0 percent in February.

The unemployment rate slipped to 3.4 percent in March from 3.5 percent the month before, matching the level last seen in December.

However, a survey of purchasing managers by Markit for April showed declines in both production and new orders, with the index dropping below the 50 level which differentiates expansion from contraction to 49.9.

The latest "data signaled worsening operating conditions in the Japanese manufacturing sector," Amy Brownbill, an economist at Markit, said in an analysis of the survey.

"Production contracted for the first time since July 2014, underpinned by a further decline in new orders. Meanwhile, growth in new export orders slowed to the weakest in the current 10-month sequence of expansion."

Data released Thursday showed industrial production fell 1.2 percent in March from a year earlier and 0.3 percent from the month before, a milder decline than the more than 2 percent drop many manufacturers and analysts had expected. But a further fall is forecast for April.

Prime Minister Shinzo Abe, on a U.S. tour, has sought to raise confidence in his government's economic recovery strategy, which hinges on lavish monetary easing, public works spending and longer-term reforms.

The policies have yielded mixed results, with share prices soaring and the value of the yen plunging thanks to massive injections of cash into the economy by the central bank through its purchases of bonds and other assets.

The economy fell into recession following the sales tax increase that broadsided demand. The Bank of Japan expanded its asset purchases in October to help counter the malaise, but growth has remained flat despite a mild recovery in exports.

Japan is still on track for a "moderate recovery," the central bank said in its latest assessment of the economic outlook. But it acknowledged a raft of uncertainties that could either support faster growth or drag it down, including weaker demand for Japan's exports to China and the U.S.

The U.S. economy expanded at a mere 0.2 percent pace in January-March, the slowest rate in a year, and China's economy has also slowed more than anticipated.

Economists point to sluggish corporate investment as a factor slowing U.S. growth. That is a problem shared by Japan as companies opt to invest overseas rather than in a shrinking home market where the population is declining and fast aging.

Wages have also failed to pick up significantly for most workers, whose incomes are not keeping up even with the modest inflation seen so far under Abe. That in turn has undermined consumer demand, sapping growth.

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