It was the fourth straight year of price decline, increasing the urgency of the new government Prime Minister Shinzo Abe to get the country out of the trend of falling durable goods prices.
Deflation or falling prices hurts the all-round economy as consumers refrain from purchases in anticipation of additional price cuts, which in turn hits demand and forces businesses to cut expenses and employment, creating a spiraling effect.
Releasing the data, Japan's Ministry of Internal Affairs and Communications said the core consumer price index for 2012, which does not include fresh food, was 99.7 against the 2010 base of 100, Kyodo News reported.
The December 2012 CPI was down 0.2 percent from the same month of 20l1, marking the second straight monthly decline. The December CPI index stood at 99.4.
Under pressure from the Abe government, the Bank of Japan, the country's central bank, earlier this week doubled its inflation target to 2 percent and announced further monetary easing to tackle deflation.
However, any inflationary step could hurt the Japanese public through higher prices without wage increases.
Earlier this week, Japan's finance ministry announced the country ended 2012 with a record trade deficit of about $78 billion, the second year in a row of deficits after enjoying surpluses for decades. Japan's export-driven economy is the third largest in the world after that of the United States and China.