TOKYO (Reuters)

Bank of Japan Governor Kazuo Ueda said on Friday that the central bank must maintain loose monetary policy to ensure underlying inflation gradually accelerates toward its 2% target.

While consumer inflation has recently moved above the BOJ’s 2% target, the increase was largely driven by cost-push factors such as rising food and fuel prices, which are expected to dissipate later this year, he told parliament.

“Underlying inflation remains somewhat below 2%,” Ueda said, emphasizing the need for price rises to be accompanied by sustained wage gains.

“There’s no change to our stance, which is to continue raising interest rates and adjust the degree of monetary support if the economy and prices move in line with our forecasts,” he stated.

After exiting a decade-long radical stimulus last year, the BOJ raised short-term interest rates to 0.5% from 0.25% last week, believing Japan was making progress towards sustainably achieving its 2% inflation target.

Ueda has described these moves as aiming to scale back large-scale stimulus, arguing that inflation-adjusted real borrowing costs remain low.