By Leika Kihara

TOKYO (Reuters), Haruhiko Kunroda, Bank of Japan Governor, warned that recent increases in inflation due to higher import costs may have a negative impact on the economy. He stressed that the central bank will continue its loose monetary policy.

Kuroda stated that consumer inflation will likely increase as oil prices rise rapidly and businesses pass higher material costs on to consumers.

Although the BOJ’s chief stated the economy that is third in world size would be recovering as consumers show signs of improvement and strong demand from overseas, he cautioned about potential risks.

Kuroda spoke at the annual trust bank meeting, saying that “the outlook remains highly uncertain due the effect of the pandemic as well as developments in Ukraine and the impact price on commodities.”

He stressed that the BOJ must maintain its massive stimulus in order to help an economy still recovering from the pandemic.

Kuroda explained that Japan’s current rising inflation caused by increased import costs has had a negative impact on Japan’s economic performance. He also stated that the decrease in real income for households and lower corporate profits have impacted Japan.

Due to the rise in commodity prices around the world, as well as a weakening yen, imports from resource-poor Japan have been more expensive, which has threatened to derail any fragile economic recovery.

Shinichi Suzuki, Finance Minister, warned markets not to push down the yen excessively. He stated earlier Wednesday that it was “undesirable” for the yen to move rapidly.

However, this remark did not stop the yen sliding below 126 against the dollar Wednesday. This was the first time that it has breached that mark since May 2002.