The Bank of Japan has no plans to change its ultra-loose monetary policy as inflation remains well above its 2% target, according to deputy governor Masazumi Wakatabe, dousing speculation that rising inflation could lead it to adjust yield targets.
Wakatabe stated in a speech on Thursday that consumer inflation could accelerate to about 1% in the coming months and may rise faster than predicted as more businesses seek to pass on rising costs to consumers.
However, the BoJ must maintain its enormous stimulus programme because inflation expectations have yet to rise to the bank's aim of 2%, he said.
"It would be premature to tighten monetary policy before inflation reaches the BoJ's target, as doing so could hinder the economy's recovery," said Wakatabe. "We have absolutely no plan to change policy."
Some analysts predict that consumer inflation will approach 2% in April and beyond, as the drag from cellphone fee cuts fades and rising global raw material costs force more price increases.
Wakatabe stated that temporarily touching 2% inflation will not be enough for the BoJ to withdraw stimulus, adding that inflation must increase long enough to affect public perceptions of future price movements and trigger wage hikes.
"It would be appropriate to tighten policy if wages and inflation expectations continue to rise, triggering a second-round effect that drives inflation above our target," Wakatabe said.
"In a country like Japan, where medium- and long-term inflation expectations are not anchored at 2%, maintaining easy monetary policy would be the appropriate policy response."