By Leika Kihara
TOKYO (Reuters) -The Bank of Japan will continue to raise interest rates if underlying inflation accelerates toward its 2% target as projected, a senior central bank official said on Wednesday.
“Underlying inflation is heading toward 2% but still remains below that level now. As such, we must support economic activity with loose monetary policy,” Kazuhiro Masaki, director-general of the BOJ’s monetary affairs department, told parliament.
“Having said that, we will continue to raise interest rates and adjust the degree of monetary support, if underlying inflation accelerates toward 2% as we project,” he said.
Japan’s core consumer inflation hit 3.0% in December, marking the fastest year-on-year pace in 16 months and exceeding the BOJ’s 2% target for nearly three years.
But the central bank has said it focuses on underlying inflation, or the broad trend of price moves that strips away one-off factors such as fuel and volatile fresh food costs, in judging whether inflation will sustainably hit its 2% target.
In January, the BOJ’s board raised its forecast for core-core CPI, which strips away the effect of volatile fresh food and fuel costs, to 2.1% for fiscal 2025, up from a previous estimate of 1.9% in October.
Japan’s post-pandemic price increases have been driven mostly by rising raw material costs, blamed in part by higher import costs from a weak yen, Masaki said.
Such cost-push inflationary pressure is likely to dissipate, while rising wages are leading to moderate increases in services prices, he added.
“We expect underyling inflation to gradually head toward our 2% target,” Masaki said.
(Reporting by Leika Kihara; Editing by Himani Sarkar and Kim Coghill)
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