Japan's economy is on the brink of recovery, say observers

The core Consumer Price Index (CPI) for May was down 0.1% from a year ago, government figures showed.

The data, however, is unlikely to deter the Bank of Japan from raising interest rates from their current level of 0.5% by August, analysts say.

This view was backed by figures showing the unemployment rate remained steady at 3.8% - the lowest level since 1998.

Yen weakens

Chief Cabinet Secretary Yasuhisa Shiozaki played down the consumer price data, which is a key measure of whether the country has fully emerged from years of deflation and is used by the Bank of Japan to help it decide on future interest rate policy.

"Looking at overall price movements, we maintain our view that the end of deflation is in sight," he said.

Bank of Japan governor Toshihiko Fukui has said in the past that if the prospects for economic growth are convincing, then interest rates could rise even if consumer prices are slightly down.

The yen fell to trade at 123.41 against the dollar on doubts of the extent to which Japanese policymakers can raise interest rates without choking off the country's economic recovery.