TOKYO (AFP) -- Japan continued its slow crawl out of deflation in September when core consumer prices edged up by 0.2 percent from a year earlier, the government said.

However, the figure was below the 0.3 percent gain expected by the market and, excluding energy, core prices were down 0.5 percent, reflecting the fact that soaring oil prices are largely driving the modest inflation.

Consumer prices as a whole, including volatile prices of fresh food, rose 0.6 percent last month year-on-year, preliminary figures from the Ministry of Internal Affairs showed.

Japan entered its deflationary spiral in the wake of the bursting of the asset bubble in the early 1990s.

Consumers, seeing prices fall, decided to wait before making any purchases in the hope of getting their goods even cheaper still, while banks were saddled with mounting bad debts.

Finance Minister Koji Omi said earlier this month that Japan had finally beaten deflation, but other ministers have been reluctant to follow suit, urging the central bank to give the economy more room to recover.

The Bank of Japan in July raised interest rates for the first time for almost six years, by a quarter-point to 0.25 percent, and signaled it would proceed slowly with further rises.

With inflation still relatively tame, however, some economists believe the BoJ is unlikely to raise borrowing costs again until well into 2007, although others have not ruled out another rise this year.

Expectations of an interest rate rise were scaled back in August following downward revisions to past consumer price inflation figures.

Analysts also say that a looming price war among Japanese mobile telephone operators could weigh on nascent inflationary pressures.

"The announcement of call rate cuts by the mobile phone industry's third largest player is making waves," "said Morgan Stanley economist Takehiro Sato. But he added: "We should understand that the free hand of the BoJ will not be compromised significantly even if prices continue to lack buoyancy due to declines in broadly defined public utility charges and oil prices."

A leading indicator for national price trends, October core consumer price index (CPI) for Tokyo alone, gained 0.1 percent compared with a year earlier, the government said.

The share prices shed 0.59 percent on Friday as investors opted to pocket gains despite the fresh highs posted overnight on Wall Street, dealers said.

They said investors were busy wading through a flood of local company results with another batch of earning reports due after the close Friday.

The Tokyo Stock Exchange's benchmark Nikkei-225 index fell 99.75 points to 16,711.85 points by the lunch break. The broader TOPIX index of all first-section issues shed 12.11 points or 0.73 percent to 1,652.48.