Japan's central bank expects inflation to exceed its target of 2% as higher crude oil prices drive energy and goods prices upward, Governor Kazuo Ueda said in prepared remarks read by Deputy Governor Ryozo Himino on Wednesday.
Himino delivered Ueda's remarks as the governor was previously hospitalized for an infected liver cyst, also missing the policy meeting for June.
"Given that the underlying inflation rate is approaching 2% and the current monetary environment is accommodative, we believe that we will continue to raise the policy interest rate and adjust the degree of monetary easing in accordance with economic, price, and financial conditions," Ueda said in his prepared speech to the National Shinkin Bank Convention.
Ueda said the recent increase in the benchmark interest rate to 1% is "appropriate" and that the central bank will continue to "firmly support economic activity."
The timing of the adjustments will depend on the impact of the Middle East conflict on the Japanese economy, according to the central bank governor.
Board members at the Bank of Japan earlier warned that increasing crude oil prices could spill over to midstream business-to-business prices and hurt consumer items.
Japan's annual headline inflation rose to 1.5% in May from 1.4% in April, while core inflation, which strips out volatile items, held steady at 1.4%.
"Government measures have the effect of influencing households' perceived inflation by adjusting the price levels of specific goods and services," according to the June minutes.
Ueda also reiterated the central bank's plan to shrink its purchases of Japanese government bonds to 2 trillion yen starting April 2027.
In his speech, Ueda also touched on the sophistication of cyberattacks, adding that Japan has to take artificial intelligence advancements into consideration to support varying financial service needs.
