The Bank of Japan will raise interest rates gradually to keep inflation under control while also giving the economy time to recover, the Nihon Keizai Shimbun quoted BoJ governor Toshihiko Fukui as saying in an interview published today.
"We would like to adjust the interest rate level slowly (but also) not to be excessively behind the curve (too late)," Fukui said.
"The Japanese economy has just got out of intensive care, so to speak. It needs special care for the moment as it may have some unhealthy parts," he said.
"On the other hand, my judgement on the macro-economy says demand will surpass supply ... so upward price pressures are expected to grow," Fukui added.
Financial markets expect the central bank to soon end its era of near-zero interest rates, possibly as early as July, after it scrapped its five-year ultra-loose monetary policy in March now that deflation is fading out.
The Bank of Japan upgraded slightly its outlook for the economy Friday while keeping its zero interest rate policy unchanged as expected.
Last week the government said gross domestic product (GDP) grew 0.5 pct in the three months to March, or at an annualized pace of 1.9 percent, slower than in the previous quarter but still better than expected.
The data also underscored a further easing of deflationary pressures.
Fukui said recent falls in stock prices and the yen's appreciation were unlikely to derail the country's ongoing recovery.
"I don't see any shock in the short term that would change the current trend of economic expansion," he said.
Dealers had earlier been speculating about a possible rise in borrowing costs in June but Fukui last week effectively quashed such talk.
The Bank of Japan in March scrapped its deflation-fighting policy of flooding the financial system with cash and returned to a conventional monetary policy of focusing on interest rates like the US and European central banks