By Leika Kihara

TOKYO (Reuters). Japan’s inflation rate could temporarily exceed that of the central bank at 2% as geo-political threats push up energy costs.

Junko Nagawa (BOJ), a Bank of Japan member, reiterated his bank’s determination to maintain monetary policy extremely loose. He also stressed the need for wage increases in conjunction with inflation if such price rises are to be sustainable.

Nakagawa stated that inflationary pressures will continue to be strong for the moment, especially for industrial, energy and food goods. He also said that core consumer prices could “briefly increase close to 2%” year-on-year.

“Even though that may happen, it’s crucial to look at the factors driving up prices and determine if Japan’s economic fundamentals will be strong enough to sustain price rises like this,” she stated.

Rising raw material costs in Japan have led to a rise in wholesale prices. However, the core rate of consumer inflation in Japan was just 0.2% in January. Weak household spending and slow wage growth prevent companies from passing these higher costs onto consumers.