UPDATE 1-Inflation in Japan's capital accelerates, keeps rate hike prospects intact

Recasts with detail, background

By Leika Kihara

TOKYO, Dec 27 (Reuters) - Core inflation in Japan's capital accelerated in December as price pressures broadened, data showed on Friday, keeping alive market expectations for a near-term interest rate hike.

The data will be among factors the Bank of Japan (BOJ) will scrutinise at its next policy meeting on Jan. 23-24, when some analysts expect it to hike short-term interest rates.

The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.4% in December from a year earlier, compared with a median market forecast for a 2.5% gain. It followed a 2.2% year-on-year rise in November.

Another index that strips away both fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 1.8% in December from a year earlier after increasing 1.9% in November, the data showed.

The Tokyo inflation data, considered a leading indicator of nationwide trends, is closely watched by policymakers for clues on how much progress Japan is making towards durably meeting the BOJ's 2% inflation target - a prerequisite for more rate hikes.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress on meeting its inflation goal.

Governor Kazuo Ueda has signaled a readiness to raise interest rates again if the economy and prices move in line with the board's projections.

All respondents in a Reuters poll earlier this month expect the BOJ to hike interest rates to 0.5% by March next year. Its decision to keep rates steady this month has heightened market attention on whether a hike would come at its next meeting on Jan. 23-24, or a subsequent rate review on March 18-19.

(Reporting by Leika Kihara; Editing by Sam Holmes)

((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters Messaging: leika.kihara.reuters.com@reuters.net))