The Bank of Japan's Deputy Governor, Ryozo Himino, stated on Friday that the central bank will persist with interest rate increases to prevent the underlying inflation rate from exceeding its 2% target.
Himino highlighted that wholesale inflation is accelerating at a significant pace as businesses pass on cost increases stemming from the Middle East conflict to consumers, a trend that could lead to broader price rises.
Explaining the rationale behind the BOJ's decision on Tuesday to raise its policy rate to 1%, Himino told Japan's parliament, "There is a risk that underlying inflation deviates from the target and fluctuates upward."
He noted that while rising oil prices due to the Middle East conflict could pressure economic growth, the Japanese economy is demonstrating resilience, supported by robust corporate profits and household income growth.
The United States announced on Thursday the lifting of its blockade on Iran, allowing tankers passage through the Strait of Hormuz as a provisional ceasefire agreement took effect, although several key issues between the two nations remain unresolved.
When questioned about the yen's weakness, Himino indicated that the Bank of Japan is closely monitoring the currency's movements, as it represents a crucial factor influencing the economy and inflation.
The Bank of Japan's decision on Tuesday elevated interest rates to their highest level in 31 years, marking a significant milestone in its policy normalization process and signaling its readiness to implement further monetary tightening to address price pressures exacerbated by energy shocks linked to the conflict involving Iran.
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