March 19 (Reuters) - The Bank of Japan kept interest rates steady on Thursday but warned that rising oil costs from the Middle East conflict could fuel underlying inflation, signalling caution over mounting price pressures.
At the two-day meeting ending on Thursday, the BOJ left unchanged its short-term policy rate at 0.75%. Hawkish board member Hajime Takata repeated an unsuccessful proposal he made in January to push up rates to 1.0%.
Following are excerpts from BOJ Governor Kazuo Ueda's comments
at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
ON WEAK YEN
"We need to be mindful that currency fluctuations could have a stronger impact on underlying inflation than in the past."
TEMPORARY SUPPLY SHOCK?
"One standard idea would be to look through the impact if it is a temporary supply shock. But it's not clear whether the shock would be temporary, making it hard to say in advance how much it could take to determine the impact on underlying inflation."
WAGE, PRICE TRENDS KEY TO INFLATION OUTLOOK
"When looking at the outlook for underlying inflation, we need to scrutinise this year's wage negotiations and how much companies may raise prices, so that we know whether wages and prices will continue to rise in tandem.
"We will gather various information, as well as conduct surveys on companies, to confirm this point."
ON WHETHER COSTS CAN RISE
"We need to be mindful that recent developments come at a time when companies are already actively pushing up prices and wages, which suggests they could pass on costs more aggressively than after the war in Ukraine."
FACTORS THAT COULD IMPACT UNDERLYING INFLATION
"The conflict could weigh on the economy by worsening the output gap, thereby pushing down underlying inflation. On the other hand, rising oil prices and the weak yen could affect households' medium- and long-term inflation expectations. If so, that could push up underlying inflation."
ON INFLATION TRAJECTORY
"Underlying inflation could fluctuate either upward or downward."
DETERMINING THE IMPACT OF RISING OIL PRICES
"Before the Middle East conflict, household and corporate activity had been firm. The government's stimulus measures will likely underpin the economy. We will take these points into account in determining the degree to which rising oil prices could weigh on the economy through worsening terms of trade."
ON FUTURE RATE HIKES
"As for the likelihood and timing of future rate hikes, we will make a decision looking at the economy, price developments at the time, as well as the likelihood of durably achieving our price target."
BOJ FLAGS INFLATION UNCERTAINTY, MORE DATA AHEAD
"It will likely become increasingly difficult to gauge underlying inflation partly due to the government's steps to cushion the blow from inflation, and rising oil prices. As such, we will release more thorough information on core consumer inflation. We will also re-calculate Japan's estimated natural rate of interest and release our findings once necessary preparations are completed."
(Reporting by Leika Kihara; Editing by Janane Venkatraman)
