Bank of Japan signals possible rate hikes as inflation accelerates
The Bank of Japan will persist with raising interest rates if underlying inflation accelerates toward its 2% target, a senior 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, News.Az reports, citing Reuters.
"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.
The remarks suggest the BOJ is maintaining its resolve to steadily push up borrowing costs despite rising uncertainty from U.S. President Donald Trump's tariff policies, which is heightening market volatility.
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 driven by domestic demand that is measured by various indicators, 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 underlying inflation to gradually head toward our 2% target," Masaki said.
Economy Minister Ryosei Akazawa told the same parliament session the government's focus would be to eradicate Japan's deflationary mindset, including by taking measures to encourage firms to raise wages.
The BOJ raised short-term interest rates to 0.5% from 0.25% in January reflecting its conviction that Japan was making progress in sustainably achieving its 2% inflation target.
Governor Kazuo Ueda has signaled his readiness to keep raising rates if wages continue to increase and underpin consumption, thereby allowing firms to keep hiking pay.
Data released on Wednesday showed regular pay, or base salary, rose 2.7% in December from a year earlier. Adjusted by inflation, real wages rose 0.6% year-on-year thanks to a bump from winter bonuses.
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