The slew of data failed to erase worries about the health of Asia's largest economy given slowing global growth, analysts said.

Core consumer price inflation stood at 0.8 per cent in January, matching December's rate which was the fastest since March 1998, the government said.

The world's second-largest economy has struggled for the past decade to put a decisive end to deflation, which weighs on growth by undermining corporate profits and giving consumers an incentive to wait to spend their money.

But the return of inflation is not necessarily good news for Japan as it is largely due to volatile global prices in oil and raw materials.

'Most of a 0.8 per cent rise in consumer prices can be explained by rising oil prices and food prices, which is a negative factor for the economy given that household incomes have not increased,' said Mr Yoshiki Shinke, economist at Dai-ichi Life Research Institute.

It was the fourth consecutive month of positive inflation but slightly slower than the 0.9 per cent rate expected by financial markets.

February prices in Tokyo, a leading indicator released a month earlier than the nationwide figures, rose 0.4 per cent.

The Bank of Japan until 2006 maintained an unusual policy of keeping interest rates effectively at zero in a bid to defeat deflation. The current benchmark rate of 0.50 per cent remains the lowest among major economies.

Markets see little chance of another interest rate rise any time soon and some economists think the BoJ will even have to cut interest rates.

Spending by Japanese households rose by 3.6 per cent in January from a year earlier, easily beating market expectations despite the uncertain economic outlook, a separate report showed.

Market forecasts had, on average, been for a tepid increase of 0.1 per cent.

'Household spending was a positive surprise, even though this indicator is known for drastic swings. You can't become optimistic about the prospects for the Japanese economy just because of the household spending,' he added.

The overall income of households fell 1.4 per cent in January from a year earlier, the government.

Economy recovering from slump
Japan's economy is gradually recovering from a slump stretching back more than a decade but consumer spending has remained sluggish as companies award their workers only modest pay rises despite healthy profits.

Japan's jobless rate was unchanged at 3.8 per cent in January from the previous month, holding above a trough of 3.6 per cent seen in July, which was the lowest since February 1998, official figures showed.

A separate report from the labour ministry showed there was a shortfall of available jobs for a third straight month in January, when there were only 98 jobs available for every 100 job seekers.

Japan's economy relies heavily on exports to drive its recovery from a slump stretching back over a decade.

The economy showed unexpected resilience in the fourth quarter of 2007 amid the fallout from the US subprime loan crisis, growing at an 3.7 per cent annualised pace.

But there are concerns that falling shipments to the faltering US economy will put the brakes on growth here.

'The Bank of Japan probably won't be able to change interest rates during this year under these circumstances,' said Mr Shinke. -- AFP