* August nationwide core CPI +0.5%, matches forecast
* Index excluding oil, fresh food +0.6% in August
* Soft inflation adds pressure on BOJ to ease further(Adds analyst quote, detail)
By Leika Kihara
TOKYO, Sept 20 (Reuters) - Japan's core consumer inflationslowed to a new two-year low in August due to lower oil costsand feeble economic growth, data showed on Friday, adding to thecentral bank's growing challenges in achieving its elusive 2%price target.
The data will keep the Bank of Japan, which left monetarypolicy steady on Thursday, under pressure to ramp up an alreadymassive stimulus programme to fend off risks that could delay itfrom achieving its price goal.
The nationwide core consumer price index (CPI), whichincludes oil products but excludes fresh food prices, rose 0.5%in August from a year earlier, matching a median market forecastand slowing from a 0.6% gain in July. It was the slowest pace ofincrease since July 2017, when the index rose 0.5%.
"Slowing global growth, a strong yen and falling crude oilcosts are pushing down wholesale prices. There's a strong chancethis will spread to consumer prices," said Takeshi Minami, chiefeconomist at Norinchukin Research Institute.
"If the yen rises and threatens to affect the pricemomentum, the BOJ will loosen monetary policy next month," hesaid.
While one-off factors such as falling energy costs and cutsin cellphone charges were largely behind the slowdown, inflationwas also getting little support from domestic demand.
An index stripping away the effects of fresh food and energycosts, which is closely watched by the BOJ as a good indicatorof price trends backed by the strength of the economy, was up0.6% in August from a year earlier, unchanged from the previousmonth's increase.
The data will be among factors the BOJ will scrutinise atits next rate-setting meeting on Oct. 30-31, when it alsoconducts a quarterly review of its growth and price forecasts.
While keeping policy steady, the BOJ signalled on Thursdayits readiness to expand stimulus as early as next month byissuing a strong warning of overseas risks that threaten theeconomy.
Slowing global demand and the broadening fallout from themore than year-long U.S.-China trade war have hurt exports andbusiness sentiment, clouding the outlook for Japan's economy.
While capital expenditure is holding up, analysts warn thatthe economy may lose support from domestic demand if October'ssales tax hike hurts already fragile consumer sentiment andcools household spending.
Consumer inflation will come under pressure from childcaresubsidies the government will introduce in October, though thatcould be more than countered by the impact from the tax hike andthe surge in global oil prices after attacks on Saudi Arabianoil facilities last weekend.
"Nevertheless, the sales tax hike will also cause domesticdemand to slow and price pressures will weaken as a result,"said Marcel Thieliant, senior Japan economist at CapitalEconomics, adding that inflation will fall to 0% in 2020.
Years of heavy money printing have failed to prop up pricesand change public perceptions that inflation will be subdued,dashing the hopes of BOJ policymakers that aggressive monetaryeasing will lift Japan sustainably out of deflation.
With interest rates already at zero and companies hoardingcash instead of spending, many analysts doubt whether additionalmonetary easing would do much to lift inflation.
Under its current forecasts made in July, the BOJ expectscore consumer inflation to hit 1.0% in the current fiscal yearending in March 2020 and fall short of its 2% target for thefollowing two years.(Editing by Sam Holmes and Jacqueline Wong)