TOKYO, June 10, 2009 (AFP) - Japanese wholesale prices dived 5.4 percent in May from a year earlier to log the biggest drop in more than 22 years, official data showed Wednesday amid fears over deflation in Asia's biggest economy.

It was the steepest fall since March 1987 when wholesale prices also tumbled 5.4 percent, the Bank of Japan said in a preliminary report, with the yen's appreciation reducing oil prices.

The reading was worse than a market forecast of a 5.1 percent fall and represented the fifth straight month of declines year-on-year. The fall was steeper than a revised 4.0 percent drop in April.

Annual wholesale inflation surged to more than seven percent last August on the back of higher oil and material costs, but has since evaporated.

Compared with the previous month, wholesale prices in May fell by 0.4 percent, the ninth straight month of declines, the central bank said.

Japan, the world's second-largest economy, was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, prompting the central bank to slash interest rates to almost zero.