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Retail sales in Japan fell by more than forecast in February, underlining the challenge the new government faces to stoke inflation and consumer demand.

Sales dropped 2.3% from a year earlier, the Ministry of Economy, Trade and Industry said.

Most analysts had forecast a 1.2% dip.

Japan has been trying to boost domestic demand to offset a decline in exports and revive its stagnant economy, hurt over the years by deflation, or falling prices.

Deflation has prompted consumers to put off purchases in hope of a better deal.

Prime Minister Shinzo Abe, who came to power last year, has said that triggering inflation was among his top priorities.

Under pressure from the new government, Japan's central bank, the Bank of Japan, doubled its inflation target to 2% earlier this year.

Many analysts have said that boosting consumer price growth is key to reviving domestic consumption.

Signs of recovery?

However, there are signs that things may be starting to turn around.

The figures from the Ministry of Economy, Trade and Industry also showed that retail sales in February rose 1.6% from the previous month.

Analysts said that the aggressive policy stand taken by Mr Abe's administration, coupled with the increased inflation target, had been having a positive impact on consumer confidence.

"We are seeing more optimism with the Japanese consumers and households," said Martin Schulz of Fujitsu Research Institute in Tokyo.

"They are now hopeful that Mr Abe's policies will help revive Japan economy and put it back on a growth track."

However, Mr Schulz added that there had to be a sustained month-on-month recovery in domestic consumption and spending for it have an impact on Japan's economic recovery.

He said that for that happen, salaries in Japan needed to increase.

"Nominal wages have actually been falling in Japan's deflationary economy over the past years," Mr Schulz said.

"That needs to change. We need to see salaries rise across the board, that will help boost the spending power of consumers."