By Leika Kihara
TOKYO, March 4 (Reuters) - Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank will continue to raise interest rates if its economic and price forecasts materialise, while keeping a close eye on the fallout from the Middle East conflict.
Speaking in parliament, Ueda said developments in the Middle East could have a huge impact on the global economy, including that of Japan, through rising energy costs and market moves.
"Rising crude oil prices would worsen Japan's terms
of trade and hurt the economy, which in turn could put downward pressure on underlying inflation," Ueda said.
"If oil price rises persist, however, it could also push up underlying inflation by heightening medium- and long-term inflation expectations of households and companies," he said.
When asked about recent yen declines, Ueda said the central bank was "very carefully" analysing how exchange-rate moves could affect current and future price developments.
He also said wages needed to rise significantly for Japan to sustainably and stably achieve its 2% inflation target.
"The BOJ cannot exert strong influence on real wage growth", which is determined mainly by medium- and long-term labour productivity, Ueda said.
"But we will pursue monetary policy so that Japan sustainably and stably achieves our inflation target accompanied by wage gains," he said.
(Reporting by Leika Kihara; Editing by Jamie Freed and Sam Holmes)
