Japan's wholesale prices dipped 0.1 percent in September from a year earlier, the Bank of Japan said in a report on Thursday.
The reading of Japan's corporate goods price index (CGPI) stood at 102.8 in the recording period, marginally below economists expectations for a flat reading.
On month, the CGPI was largely unchanged, matching both expectations and the previous month's revised reading.
Export prices were down 0.5 percent on month and 5.0 percent on year, while import prices eased 0.1 percent on month but added 2.8 percent on year, the central bank's report stated.
On a quarterly basis, prices were down 0.2 percent on quarter and 0.1 percent annualized, also with an index score of 102.8, the BOJ said.
The central bank's overseas commodity index, a gauge of costs of materials including oil, steel, copper and wheat, rose 23.6 percent in September from a year earlier, compared with an 8.7 percent increase in August.
The index had been rising more than 50 percent in the first four months of 2010.
The CGPI measures prices for goods purchased by Japanese corporations and as prices for input materials and the overall cost of manufacturing change, Japanese companies adjust retail prices accordingly.
The CGPI in Japan comprehensively tracks these supply-side price pressures and decreases in the index often precede downward movement in the CPI.
If a decrease in the CGPI is followed by a fall in the CPI, concerns about deflation may prompt the BOJ to cut interest rates.
BOJ policy makers last week pointed to the yen's strength as a reason to expect a dip in producer prices, when it downgraded its economic assessment in its monthly report.
The central bank also cut the target for the benchmark interest rate for the first time since 2008 and created a 5 trillion yen ( 61 billion U.S. dollar) fund to buy assets and expand its balance sheet.
"It's too early to assume the BOJ's measures can work effectively to beat deflation and stop the yen's appreciation," Eiji Dohke, chief Japanese government bond strategist at Citi Group Global Markets Japan Inc. in Tokyo, said before the report. "The BOJ will probably implement additional action as early as November."
In addition the BOJ may forecast a fall in core consumer prices for the fiscal year from next April in its twice-yearly outlook report instead of a currently projected rise, local media reported recently.
In July, the BOJ said the core consumer price index (CPI) excluding fresh food prices is expected to rise 0.1 percent in 2011/12 -- the first increase in three years.
However the central bank is likely to revise down this forecast to flat or negative when it releases the semiannual report on Oct. 28, local media said, citing informed sources.
The BOJ is also likely to lower its growth forecasts to between 2 percent and 2.5 percent from 2.6 percent for the current year and to between 1 percent to 1.5 percent from 1.9 percent for 2011/ 12, sources familiar with the matter said.
The BOJ releases its price and growth forecasts in April and October and reviews them in July and January.
The BOJ has been prompted to revise down its forecasts as the slowing U.S. economy and the yen's rise have clouded the economy's outlook.
A delay in Japan's escape from deflation means the central bank will need to keep the policy rate virtually at zero percent for an extended period of time, local media said.
As the most important indicator of deflation, CPI figures are closely followed by the BOJ.
Sinking consumer prices may prompt the BOJ to lower interest rates in order to manage inflation and slow economic growth. - PNA
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