Bank of Japan Governor Kazuo Ueda said on Friday the country's corporate price-setting behaviour was showing changes that could work to push up inflation more than expected.
However, he stressed anew the central bank's resolve to keep monetary policy ultra-loose, to ensure companies raise wages enough to more than offset the burden on households from rising inflation.
"There's still some distance to sustainably and stably achieve our 2% inflation target. As such, we will patiently maintain our monetary easing policy," Ueda told parliament.
By supporting the economy, the central bank aims to generate a positive cycle in which inflation-adjusted wages will start increasing, he added.
Japan's core consumer inflation hit 3.4% in April, exceeding the BOJ's 2% target for over a year, as companies continued to pass on rising raw material costs to households.
Inflation-adjusted real wages fell 3.0% in April to mark the 13th straight month of declines in a sign the rising cost of living was squeezing households' purchasing power.
The BOJ currently expects core consumer inflation to slow below the central bank's 2% target in the latter half of the current fiscal year, Ueda said.
"But there is various uncertainty surrounding the inflation outlook. What's important is corporate price-setting behaviour, which is somewhat overshooting expectations," he said.
This year's outcome of annual wage negotiations between companies and unions also led to strong rises in pay, Ueda said.
The central bank will scrutinise various data in producing fresh quarterly inflation forecasts in July, he added.
With inflation exceeding the BOJ's target, markets are simmering with speculation that Ueda will phase out his predecessor Haruhiko Kuroda's massive stimulus that has drawn criticism for distorting markets and crushing bank profits.
