Deflation moderated and unemployment fell, indicating Japan's recovery remains intact as policymakers consider new stimulus measures to protect the economy from the strengthening yen.

Consumer prices excluding fresh food slid 1 percent in August from a year earlier after falling 1.1 percent in July, the government said Friday. The jobless rate fell to 5.1 percent from 5.2 percent, while the number of people no longer in the labor force increased, it said.

Friday's reports show little sign that the yen's climb to a 15-year high against the dollar has hurt the economy so far, a contrast with data Thursday showing industrial production unexpectedly slid. The Bank of Japan Policy Board meets next week to consider whether to expand a credit program and Prime Minister Naoto Kan is compiling stimulus to shore up growth.

"Employment lags behind the current state of the economy, so today's improvement in the jobless rate reflects the firmness in the economy in the first half of this year," said Mika Ikeda, an economist at Nomura Securities Co. Even so, "deflation still persists in Japan."

Underscoring the government's concern about the appreciating currency, Finance Minister Yoshihiko Noda reiterated that authorities are ready to keep intervening after selling yen last month for the first time in six years.

The stronger yen prompted Nintendo Co. earlier this week to cut its annual net profit forecast by 55 percent to ¥90 billion. Murata Manufacturing Co., an electronics components maker, will eliminate 3,000 temporary positions and increase production overseas as the yen's strength forces it to reduce costs, President Tsuneo Murata said this week.

The 1 percent decline in August's consumer price index, the 18th straight drop, matched the median estimate of 24 economists in a survey.

A stronger yen has lowered import costs and the nation's biggest retailers have cut prices, increasing deflationary pressure, economist Mari Iwashita said.

The BOJ will likely respond to the rising yen by expanding its ¥30 trillion lending facility on Tuesday, 14 of 17 economists surveyed by Bloomberg News said.

"Moves by retailers to take advantage of the yen's gain are spreading, putting renewed downward pressure on consumer prices," Iwashita, chief market economist at Nikko Cordial Securities, said before the report was released. "The pace of core prices declines have eased in recent months, but their drops may resume worsening."

Retailers including supermarket operator Daiei Inc. and Ryohin Keikaku Co., which operates Mujirushi Ryohin stores, have announced plans to cut prices.

The yen's strength has weighed on Japan's export-reliant economy, which expanded at less than half the pace in the April- June period compared with the previous quarter. Reports this week showed overseas shipments grew at the slowest pace this year in August, industrial production unexpectedly declined for a third month and gains in retail sales were smaller than economists forecast.

A slowdown in economic growth may threaten the BOJ's forecast that core prices will stop falling in the year starting next April. The Policy Board predicted core prices will rise 0.1 percent in the next fiscal year after falling 0.4 percent this year. It will update forecasts at an Oct. 28 meeting.

"It's unlikely the consumer price index is going to turn positive this fiscal year or next in an environment like this," said Yoshimasa Maruyama, a senior economist at Itochu Corp. "Households are looking for cheaper products, and companies have little pricing power, resulting in a pricing war."

The U.S. economy is also threatened by falling prices. The Federal Reserve last month said for the first time that too-low inflation, in addition to sluggish growth, would warrant its taking action as it moved closer to a second wave of unconventional monetary easing.

Depending on whether the yen continues appreciating and the economy keeps weakening, BOJ Gov. Masaaki Shirakawa and his Policy Board colleagues might have to consider more loosening of credit even after possibly increasing the ¥30 trillion credit program for lenders next week, economist Hiroaki Muto said.

"With global growth slowing, an end of deflation is being put off further and further, and that means pressure on the BOJ to do more will linger," said Muto, a senior economist at Sumitomo Mitsui Asset and Management Co.

In a sign that decelerating economic growth is discouraging people from looking for work, the number of people no longer in the labor force increased by 90,000 in August from July, the employment report showed.