By Leika Kihara
TOKYO, March 17 (Reuters) – Bank of Japan Governor Kazuo Ueda said underlying inflation is accelerating toward the bank’s 2% target, stressing that price rises must be matched by solid wage gains.
The remarks came ahead of the central bank’s two-day policy meeting ending on Thursday, where the board is widely expected to keep interest rates steady at 0.75%.
Surging oil prices from the Middle East conflict add to already mounting inflationary pressure, complicating the BOJ’s decision on how soon to raise rates as Japan is reliant on energy imports to power its economy.
Ueda told parliament that wages and prices are rising moderately in tandem as firms grow bolder in passing on higher raw material and labour costs.
“Underlying inflation is gradually accelerating towards our 2% target,” and is seen converging around 2% sometime from the latter half of fiscal 2026 through 2027, Ueda said on Tuesday.
“We will guide monetary policy appropriately so that Japan sustainably and stably achieve 2% inflation accompanied by wage gains,” he said.
The comments align with those by dovish Prime Minister Sanae Takaichi, who has urged the BOJ to ensure its inflation target is met not by rising raw material costs but wage increases.
Ueda refrained from repeating the BOJ’s usual pledge to continue raising rates if the economy continues to recover.
While core inflation has remained above the BOJ’s target for nearly four years, the central bank has taken a cautious approach in hiking rates on the view underlying inflation – or price rises driven by domestic demand and wage gains – remains short of 2%.
Critics have blamed the slow pace of rate hikes for pushing up import costs by weakening the yen.
Finance Minister Satsuki Katayama on Tuesday repeated that authorities were prepared to take “all steps available” against volatile currency moves, as the yen sank close to the psychologically important 160-per-dollar mark.
NO DEBT-ROLLING
After raising rates to 0.75% in December, the BOJ has signaled readiness to keep pushing up borrowing costs. Markets have priced in roughly a 70% chance of another hike in April.
But people close to Takaichi say she has reservations over further rate hikes for fear of hurting Japan’s fragile economy.
Japan’s energy security is firmly in the firing line. The country sources around 95% of its oil from the Middle East, and nearly 90% of those supplies transit the Strait of Hormuz, a vital global energy artery severely throttled since the war erupted.
The government has decided to curb gasoline prices with subsidies – a move that could add to Japan’s huge debt pile.
While the BOJ is tapering bond buying as part of its exit from ultra-loose policy, some opposition lawmakers have urged the central bank to ramp up purchases to fund fiscal spending.
Finance minister Katayama rebuffed the idea in parliament, saying the government must avoid giving markets the impression Japan is bank-rolling debt with BOJ money printing.
Ueda also repeated the BOJ’s stance of limiting any intervention in the Japanese government bond (JGB) market to exceptional cases such as when yields spike abruptly.
“Long-term rates are basically set by markets and fluctuate to some degree reflecting market views on the economic, price as well as fiscal and monetary policy outlook,” Ueda said.
“We will take nimble action in exceptional cases, where long-term interest rates rise sharply in a way deviating from normal market moves.”
(Reporting by Leika Kihara; additional reporting by Makiko Yamazaki; Editing by Christopher Cushing and Shri Navaratnam)
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