* March nationwide core CPI +0.2 pct yr/yr vs f'cast +0.3 pct * March household spending -1.3 pct yr/yr vs f'cast -0.3 pct * Energy prices drive CPI but consumption looks weak * Data cast further doubt on BOJ's 2 pct inflation target (Adds analyst comment, details on output, spending) By Minami Funakoshi and Stanley White TOKYO, April 28 (Reuters) - Japan's core consumer prices rose at a slower than expected pace in March and household spending fell more than expected in a worrying sign for the central bank that domestic demand won't be strong enough to generate sustained inflation.
Industrial product in March also fell more that expected, but economists remain optimistic that output will quickly recover in the following month as strength in overseas economies increases export demand.
Stripping away energy costs, consumer prices actually fell for the first time in almost four years, suggesting an exit from the Bank of Japan's radical quantitative easing programme is not imminent.
"I think the BOJ will have to downgrade its consumer price forecasts again later this year," said Hiroaki Muto, economist at Tokai Tokyo Research Center Co.
"Some people in the market are looking for an exit, but the next move could be some form of easing." Most analysts polled by Reuters before Friday's data expect the BOJ's next policy move to be a tightening of monetary policy, though many do not expect it to happen until next year at the earliest.
The core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.2 percent in March and posted the third straight month of increase on rising energy costs, Internal Affairs ministry's data showed on Friday.
This undershot economists' median estimate for a 0.3 percent annual increase.
Inflation has been close to zero for almost two years, posing major policy hurdles for the BOJ's ambitious 2 percent inflation target.
Stripping away the effect of fresh food and energy, consumer prices fell 0.1 percent in March from a year ago due to lower prices for mobile phones, falling for the first time since July 2013.
Separate government data showed on Friday that Japan's jobless rate held steady at 2.8 percent in March and the availability of jobs rose to the highest since November 1990.
However, the tight labour market has so far done little to push up consumer prices, another problem for the BOJ's policy deliberations.
Japanese household spending fell 1.3 percent in March from a year earlier in price-adjusted real terms, much more than the median forecast for a 0.3 percent decline.