TOKYO Core inflation in Japan's capital likely stayed above the central bank's 2% target but slowed sharply in July, a Reuters poll showed on Friday, suggesting that easing cost pressures will moderate the pace of price gains nationwide.

The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, likely rose 2.9% in July from a year earlier, according to a Reuters poll, slowing from a preliminary 3.2% gain in May.

The slowdown would be largely due to moderating fuel costs and the base effect of last year's sharp gains, analysts say.

Tokyo inflation data is closely watched by markets as a leading indicator of nationwide price trends.

The July data will be released at 8:30 a.m. on July 28 (2330 GMT on July 27), or hours before the closely watched policy announcement of the BOJ's July 27-28 rate review.

(Reporting by Leika Kihara; Editing by Himani Sarkar)