Bank of Japan Governor Kazuo Ueda said on Tuesday the central bank will patiently maintain its ultra-loose monetary as there is some distance to sustainably achieve its 2% inflation target, downplaying expectations for a policy change in the near-term.

“We expect inflation to quite clearly slow below 2%” toward the middle of the current fiscal year, Ueda told parliament.

“Inflation is likely to rebound thereafter … though there is high uncertainty” on the outlook, he added.

Positive signs included a likely big increase in pay in this year’s annual wage negotiations, which could help shake off Japan’s deflationary mindset.

“(We) will patiently continue monetary easing as there’s still distance to achievement of sustainable and stable 2% price hikes together with continued rises in wages,” Ueda said, adding that the BOJ would also continue its long-term government bond buying operations for now.

The comments come as markets speculate that Ueda will soon start to phase out his predecessor’s stimulus to address the mounting side effects of prolonged easing, such as distortions that its huge bond buying are causing in market pricing.

Those expectations have hardened on rising underlying price pressures.

Core consumer inflation in Tokyo, seen as a leading gauge of nationwide trends, slowed in May, but a key index stripping away the effect of fuel hit a four-decade high, a sign of broadening price hikes.

The BOJ will review its quarterly growth and inflation forecasts at the July 27-28 policy meeting.

Under projections made in April, the BOJ expects core consumer inflation to hit 1.8% in the fiscal year ending in March 2024, below a 2.3% forecast in a poll issued on May 15 by Japan Center for Economic Research.

Reuters