By Kaori Kaneko
TOKYO (Reuters) - Core consumer prices in Japan were forecast to have slipped in July, the first fall in more than two years, a Reuters poll showed, highlighting the growing challenge confronting the Bank of Japan in its quest to meet an ambitious inflation target.
Other data, including household spending and employment, were expected to provide some positive news to policy makers even as fresh worries about China's sputtering economy have sent global markets into a tailspin in recent weeks.
Annual core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was projected to have dropped 0.2 percent in July from a year ago, the poll of 23 analysts showed, after a 0.1 percent rise in June.
It would be the first year-on-year fall since April 2013 when BOJ Governor Haruhiko Kuroda, at his first policy meeting, launched a massive burst of monetary stimulus and committed to achieve 2 percent inflation in about two years.
That goal was pushed back to around September 2016 after last year's recession, a tumble in oil prices and lacklustre domestic demand made it clear that inflation will remain weak.
Kuroda recently warned that the new timeline could yet again be delayed if oil price falls persist.
On top of the weak price backdrop, Japan's second quarter GDP contraction and a surfeit of grim economic indicators in China - Japan's major trading partner - could raise expectations of the BOJ expanding its stimulus.
"If falls in core consumer prices are to strengthen people's deflationary mindset, the chances of the BOJ's further easing could increase," said Takumi Tsunoda, senior economist at Shinkin Central Bank.
Next week's data also includes household spending, which is seen rising 1.3 percent from a year ago in July, the poll showed, probably as hot weather spurred sales of summer clothing and air conditioners. In June, spending fell 2.0 percent.
"Since wage growth is tepid, the trend for consumer spending remains weak," said Tsunoda.
The jobs-to-applicants ratio in July likely stayed at 1.19 in July, unchanged from the previous month and the highest since February 1992.
The jobless rate was forecast to stay steady at 3.4 percent in July.
Core CPI, jobs data and household spending will be released at 8:30 a.m. on August 28 (2330 GMT August 27 ).
Retail sales are forecast to show a 1.1 percent gain in July on-year, up for the four straight month but the pace of growth has moderated in the past few months.