By Leika Kihara
WASHINGTON (Reuters) -Bank of Japan Governor Kazuo Ueda said on Wednesday that underlying inflation has been rising slowly, but it was “still taking time” for the country to achieve the central bank’s 2% inflation target in a sustainable manner.
Underlying inflation in Japan has been moving around zero before 2022, when it began to rise due to the spillover from global rises in energy and food prices, as well a boost to wages from a tight labor market, Ueda said.
“We want to use this opportunity to raise inflation expectations, underlying inflation, and move to a new equilibrium with 2% inflation in a sustainable way,” Ueda said.
“That’s why we maintain policy easy,” he told a panel at the International Monetary Fund.
Ueda said it was “very hard” to pin down the appropriate size of interest rate hikes from here due to the difficulty of estimating Japan’s neutral rate of interest.
He also warned of the cost of moving too slowly in raising interest rates.
“When there’s huge uncertainty, you usually want to proceed cautiously and gradually,” Ueda said.
“But the problem here is if you proceed very, very gradually and create expectations that rates are going to stay at low levels for a very long time, this could lead to a huge build-up of speculative positions which could become problematic,” he said.
“We need to strike the right balance.”
