BOJ must maintain monetary support, says governor Ueda

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

While consumer inflation has moved above the BOJ's 2% target recently, the increase was driven mostly by cost-push factors such as rising food and fuel prices that will likely dissipate later this year, he told parliament.

"Underlying inflation remains somewhat below 2%," Ueda said, stressing the need to achieve price rises 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 said.

Data showed on Friday that core inflation in Japan's capital hit 2.5%, marking the fastest annual pace in nearly a year, comfortably exceeding the central bank's 2% target.

In fresh quarterly projections released last week, the BOJ sharply revised up its fiscal 2025 inflation forecast citing longer-than-expected pressure from rising raw material costs.

At the same parliamentary session, Prime Minister Shigeru Ishiba stressed the need to achieve wage growth that exceeds inflation.

"It's important to have stable price increases, but at the same time we must aim for wage growth higher than inflation while prices rise stably," he said. "Falling prices may be seen positive temporarily, but such views helped prolong Japan's harmful deflation."

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

Ueda has described the moves as aimed at scaling back a large-scale stimulus, arguing that inflation-adjusted, real borrowing costs remained low.

(Reporting by Leika Kihara and Makiko Yamazaki; Editing by Jacqueline Wong & Shri Navaratnam)

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