Underlying inflation in Japan is still slightly below the central bank’s target of 2%, Bank of Japan Gov. Kazuo Ueda said, underlining that it is in no hurry to raise interest rates.

Bank of Japan (BoJ) Governor Kazuo Ueda said on Friday that underlying inflation is still somewhat below 2%. Ueda added that the Japanese central bank would maintain an accommodative policy to support price trends. Recent inflation is driven mostly by cost-push factors.

Japans service-sector inflation reached 2.9% year-on-year in December, driven by rising costs in accommodation and transportation, according to Bank of Japan (BOJ) data. While slightly lower than Novembers 3.

An uptick in inflation in the Tokyo metropolitan area and solid outturns in other key Japanese economic data support the Bank of Japan’s plan to pursue more interest-rate increases.

The Bank of Japan is expected to raise rates by 25 basis points later in the day as it concludes its monetary policy meeting.

Core inflation in Japan's capital hit 2.5%, marking the fastest annual pace in nearly a year, well exceeding the central bank's 2% target and keeping alive market expectations for further interest rate hikes.