TOKYO, Japan - September 29, 2009 - Japanese core consumer prices fell a record 2.4% in August from a year earlier, as weak final demand adds to pressure from a slide in oil prices, raising questions about the Bank of Japan's view that deflation will not warrant more policy action.

While the effect of sliding oil prices will fade from September, weak domestic consumption is threatening to prolong deflation, which would keep the central bank from raising interest rates from near zero for several years.

"Falls in oil prices are the main reason for the decline in prices. But the economy is also stagnating, and we can see that in price declines for durable goods and also services that are relevant to consumers," said Atsushi Matsumoto, an economist at Mizuho Research Institute.

"The BOJ has said annual price declines will start to slow, but it's taking a long time for this to happen, showing that deflationary pressure isn't decreasing."

Core consumer prices, which exclude volatile fresh food prices but include oil costs, fell 2.4% in the year to August, matching a median market forecast and bigger than a 2.2% drop in the year to July.

In a sign deflation is becoming more entrenched, core consumer prices excluding food and energy costs fell 0.9% in August from a year ago.

Deflation has grown quickly since prices started declining in the year to January.