The Bank of Japan has kept the overnight lending rate between banks at almost zero percent since March 2001. Governor Toshihiko Fukui said he would hold them there until core consumer prices, which exclude fresh food, stop falling for at least a few months.

``The idea that the BOJ never tightens is a perception the market has to get rid off,'' said John Richards, a strategist in Tokyo at Barclays Capital Japan Ltd. Richards spoke before the consumer prices report was released.

Ten-year bond futures for September delivery fell 0.13 to 134.96 as of 9:05 a.m. in Tokyo.

The 1.8 percent bond due June 2014 hasn't traded yet today at Japan Bond Trading Co., the nation's largest debt broker. It rose yesterday, pushing its yield down 3 basis points to 1.82 percent. A basis point is 0.01 percentage point.

Richards, whose company is one of 22 banks and securities companies that discuss bond sales with the Ministry of Finance, said the central bank will probably raise interest rates to 0.25 percent in the second half of next year.

A government report showed nationwide core consumer prices fell 0.1 percent in June from a year earlier. The median forecast of 31 economists surveyed by Bloomberg News was for a 0.2 percent decline.

Japan's unemployment rate was unchanged at 4.6 percent in June, in line with the median forecast by 38 economists in a Bloomberg News survey.