By Megumi Fujikawa
TOKYO--Bank of Japan Gov. Kazuo Ueda pledged to keep a closer eye on the yen as inflation nears the central bank's 2% target, signaling concern that the currency's weakness will drive up consumer prices too quickly.
Volatility in the yen has fueled talk of potential intervention recently, with Japanese officials warning that authorities would take action to counter what they consider to be excessively sharp movements.
On Friday, the BOJ governor said that the central bank is alert to the risk of yen fluctuations passing through to inflation. That comes as more companies seem to be willing to raise prices on their products, adding more upward pressure to inflation, he said.
"We need to monitor the potential for domestic prices to affect inflation expectations, which in turn could impact underlying inflation," Ueda said at a news conference after the bank decided to maintain its policy rate at a three-decade high of 0.75%.
The BOJ governor also promised to take the necessary steps to restore order in the bond market in the event of abnormal yield rises.
Japanese government bonds have been on a wild ride over the past week, experiencing an unusual bout of volatility fueled by fiscal concerns.
Ueda said that he would communicate closely with the government, and each side will play its own role in stabilizing the bond market.
Earlier on Friday, Japan's finance minister, Satsuki Katayama, said she was watching the bond market with a "sense of urgency."
Ueda refrained from making comments on Prime Minister Sanae Takaichi's plan to consider suspending the sales tax on food and beverages, a proposal analysts say fueled a selloff in JGBs that rippled out into other bond markets.
"It is extremely important for the government to secure market confidence in medium- to long-term fiscal sustainability," Ueda said.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(END) Dow Jones Newswires
01-23-26 0337ET
