A survey showed on Friday that Japanese manufacturing activity in February retreated from an eight-year high set in January.
The data suggests a slight ease in factory output prior to the government of Prime Minister Shinzo Abe raising the current 5 percent sales tax to 8 percent in April to pay for rising welfare costs.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) droppped to a seasonally adjusted 55.5 in February from 56.6 in the previous month.
The index stayed higher than the 50 threshold separating expansion from contraction for 12 months in a row, but it fell for the first time in seven months, Reuters reported.
"April's forthcoming sales tax hike looks set to test the current sequence of expansion, particularly given the recent slowdown evident in new export order growth, indicating that the current expansion is primarily driven by domestic demand," said Market senior economist Paul Smith.
Continue Reading Below
The PMI's output component dropped for the first time in two months to 58.4 from 61.1 the previous month, which was the loftiest since the data series got started in October 2001.
For the third straight month of declines, the index for new export orders fell to 51.5 from 52.8 in January.
Sales of apartments, houses, vehicles and durable goods have been on the rise since the middle of 2013 as people plan to purchase high-priced items prior to the tax hike.
A number of economists are concerned that the tax hike could affect consumption more severely than anticipated later in 2104, and they are speculating that the Bank of Japan may have to ease monetary policy, Reuters reported.
With the Japanese economy expanding far more slowely than anticipated at the end of 2013, there are already signs that the momentum is slowing, the news agency noted.
Still, plenty of Bank of Japan officials have played down the need for more easing. They believe the tax increase won't have a long-lasting affect.
Meanwhile, Japanese government data revealed on Friday that the country's core consumer prices rose 1.3 percent last month, from a year earlier, marking an eighth consecutive month of gains. The data shows that Japan's economy is shedding 15 years of slight deflation.
Data by the Ministry of Internal Affairs and Communications showed that the the climb in the core consumer price index (CPI), which doesn't include volatile fresh food prices but does include oil products, did compare with economists' median forecast for a 1.2 percent growth, Reuters reported.
It comes after a 1.3 percent year-on-year increase in December -- the speediest ascension since the 1.9 percent increase in October 2008.
The so-called core-core inflation index, which doesn't include food and energy prices and is somewhat the same as the core index that the U.S. uses, increased 0.7 percent in the year to January. It came after a 0.7 percent climb in December, which matched a high point that was previously achieved in August 1998, Reuters noted.
Available one month prior to the nationwide data, core consumer prices in Tokyo climbed 0.9 percent in February from a year ago, compared with economists' median estimate of a 0.8 percent gain and following a 0.7 percent increase in the previous month, Reuters reported.