By Leika Kihara
TOKYO, Oct 6 (Reuters) – Bank of Japan Governor Kazuo Ueda said on Tuesday it was becoming more important to anchor underlying inflation around the central bank’s 2% target, signalling readiness to keep raising interest rates to blunt the risk of too-high inflation.
The remarks come ahead of the central bank’s two-day policy meeting ending on October 30, where new quarterly growth and inflation forecasts will be closely watched for clues on the timing of the next rate hike.
Ueda said economic and price developments were broadly in line with the BOJ’s forecasts, with the economy recovering moderately and the central bank’s “tankan” survey pointing to solid business sentiment.
Rising raw material costs are pushing up wholesale inflation with price pressures spreading to consumer inflation, Ueda said, adding that long-term inflation expectations continue to rise.
He also warned of the risk of underlying inflation overshooting the BOJ’s target due to price pressures from the US-Israeli war on Iran, strong AI-related demand and the weak yen.
“Financial conditions remain accommodative and continue to underpin economic activity” even after last month’s rate hike, Ueda said, adding that the central bank will continue to raise borrowing costs to adjust the level of monetary support.
“It has become more important than before to ensure underlying inflation becomes anchored around 2%” so that the risk of an inflation overshoot does not materialise and damage the economy, he added.
In a statement announcing the September rate hike, the BOJ said only that it was “important” to anchor underlying inflation around the BOJ’s target.
The BOJ raised its key rate to a 31-year high last month, with Ueda signalling the central bank had entered a phase focused on preventing underlying inflation from overshooting its target, raising the prospect of tighter policy.
(Reporting by Leika Kihara; Editing by Thomas Derpinghaus and Jacqueline Wong)
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