By Leika Kihara
TOKYO, Dec 25 (Reuters) - Bank of Japan Governor Kazuo Ueda said on Thursday the nation's underlying inflation is accelerating gradually and steadily approaching the central bank's 2% target,
reiterating the central bank's readiness to continue raising interest rates.
Barring a major negative shock to the economy, labour market conditions will remain tight and put upward pressure on wages as structural changes in the market - such as declining working-age population - are irreversible, he said in a speech to Japan's business lobby Keidanren.
Companies are passing on rising labour and raw-material costs not just for food but other goods and services, a sign Japan is seeing a mechanism take hold in which wages and inflation rise in tandem, Ueda said.
"Amid tightening labour market conditions, firms' wage- and price-setting behaviour has changed significantly in recent years. Achievement of our 2% inflation target, accompanied by wage increases, is steadily approaching," Ueda said.
"Given that real interest rates are very low, the BOJ will continue to raise interest rates in accordance with improvements in the economy and prices," if its baseline scenario is realised, he said.
Adjusting the degree of monetary support will allow the BOJ to smoothly meet its 2% inflation target and achieve long-term growth, Ueda said.
(Reporting by Leika Kihara; Editing by William Mallard)
