The Bank of Japan (BOJ) needs to gradually raise interest rates according to developments in the economy and prices, governor Toshihiko Fukui said.
"If the economy steadily keeps recovering and expanding, even at a gradual pace, expectations that rates will be held extremely low for a prolonged period could hamper economic growth," Fukui told the budget committee of the upper house in Tokyo today.
"We need to adjust interest rate levels according to changes in the economy and prices," Fukui said.
Japan's central bank left borrowing costs unchanged last week, a month after it doubled the benchmark overnight lending rate to 0.5 percent, the second increase in six years.
The bank is scheduled to release minutes of last month's meeting at 2pm today in Tokyo.
Fukui said last month that short-term rates are still "very low" given the strength of the world's second-largest economy.
He repeated today that the bank will adjust rates gradually and keep them at very low levels for some time.
Fukui also said gains in consumer prices are becoming "firm" as Japan's economic growth is becoming sustainable. Core prices, which exclude fresh food, failed to rise in January from a year earlier and probably fell last month, economists predict.
Core prices dropped 0.1 percent last month, according to the median estimate of 36 economists surveyed by Bloomberg News.
The government is scheduled to release its consumer-price report on Friday in Tokyo.
Fukui told lawmakers that the bank aims to achieve stable prices over the medium to long term.
Reports may show core prices fell last month or this month because of cheaper oil, he said last week.
Central bank policy makers said last year that they consider Japan's prices to be stable as long as they stay in the range of zero percent to 2 percent. Fukui today said this isn't an inflation target and the bank's policy shouldn't be too bound by the range.
The government and the central bank share the broad goal of managing the country's economic growth, Fukui said.
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