* Japan annual core inflation slows to 1 pct in November
* Japan November output plunges a record 8.1 pct mth/mth
* BOJ is expected to further ease policy in January-March
* Japanese firms' demand before year-end boosts dollar
* Trade quiet as many Asian and European markets are closed
By Rika Otsuka
TOKYO, Dec 26 (Reuters) - The yen dipped against the dollar and the euro on Friday in thin trade after data showing a sharp slowdown in Japanese inflation, underscoring fears the world's second-largest economy could sink back into deflation next year.
Japan's annual core consumer inflation slowed to 1.0 percent in November from 1.9 percent in October, government data showed on Friday.
And in a sign of further trouble for an economy already in recession, industrial output plunged a record 8.1 percent in November from the previous month, while the ratio of jobs available to job seekers fell to a nearly five-year low.
The dollar also got boost in early trade as Japanese companies needing dollars to settle deals bought the U.S. currency ahead of the year-end.
Friday was the last business day for many Japanese firms this year and their offices will remain shut until Jan. 5.
"The dollar shortage at Japanese companies has pushed up dollar/yen," said Mitsuru Sahara, a senior trader at Bank of Tokyo-Mitsubishi UFJ. "But that was about it, while today's turnover is the lightest this year."
Financial markets in Australia, New Zealand and Europe are closed until next week.
The dollar rose to 90.55 yen from around 90.40 yen in late Asian trade the previous day.
The U.S. currency climbed as high as 90.84 yen just before the Tokyo fixing at 0100 GMT.
The euro was barely changed at $1.4013. Against the yen, the European single currency strengthened to 126.85 yen from around 126.65 yen.
But views that the U.S. economy is in even deeper trouble than initially estimated underpinned the yen against the dollar.
"The yen and the euro are expected to rise against the dollar from now on because the dollar is under strong selling pressure," said a forex trader at a U.S. brokerage.
U.S. data on Wednesday showed consumers cut their spending in November for the fifth consecutive month and orders for costly manufactured goods slumped, while the number of workers filing new claims for jobless benefits last week hit a 26-year peak.
The Bank of Japan last week lowered interest rates to close to zero, mirroring steps by the U.S. Federal Reserve, and moved to pump funds into the market to ease a corporate credit crunch.
A Reuters poll showed on Monday that market participants expect the BOJ to adopt quantitative easing in January-March, further easing monetary policy to combat a deepening recession.
Friday's grim Japanese data somewhat supported such market expectations.
"The Bank of Japan may not lower its target rate as it is already near zero. Instead, the central bank is likely to expand measures to help corporations' funding," said Yasuo Yamamoto, senior economist at Mizuho Research Institute. (Editing by Chris Gallagher)