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Tokyo core CPI rises 1.6% yr/yr in April vs f'cast +2.2%

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Index excluding fresh food, fuel rises 1.8% in April

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Service inflation slows in April, may affect BOJ decision

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Data highlights uncertainty on BOJ's rate hike timing,

pace

(Adds detail on service prices)

By Leika Kihara

TOKYO, April 26 (Reuters) - Core inflation in Japan's

capital slowed much more than expected in April and fell below

the central bank's 2% target, data showed on Friday,

complicating its decision on how soon to raise interest rates.

The reading comes just hours ahead of the conclusion of the

Bank of Japan's two-day policy meeting, where the board is set

to keep interest rates steady and produce fresh quarterly

inflation projections through early 2027.

The core consumer price index (CPI) in Tokyo, a leading

indicator of nationwide figures, increased 1.6% in April from a

year earlier, slowing from a 2.4% gain in March. It was much

lower than a median market forecast for a 2.2% rise.

Services prices rose 1.6% in April from a year earlier,

slowing from 2.7% in March, due largely to the Tokyo

metropolitan government's decision to make some tuition free,

the data showed.

A separate index that excludes the effect of both fresh food

and fuel costs, closely watched by the BOJ as a broader price

trend indicator, also showed inflation slowing to 1.8% in April

from 2.9% in March. It was the slowest pace of increase since

September 2022, when the index rose 1.7% year-on-year.

While core inflation is still above the central bank's 2%

target, the slowdown highlights uncertainty on whether

consumption and wage pressure will strengthen enough to keep

price growth durably around that level.

The BOJ has said its decision to end negative rates last

month was driven by signs that robust demand and the prospect of

higher wages were prodding firms to keep hiking prices for both

goods and services.

Governor Kazuo Ueda has said developments in service

inflation would be among key factors that could determine the

timing of the next rate hike, as they would show whether firms

are starting to pass on labour costs to households.

The weak yen complicates the BOJ's rate hike path. While it

helps exports and pushes up inflation, the hit to consumption

could cool the economy and discourage firms from passing on the

higher costs to households.