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.

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.

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.

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.

Consumer prices excluding fresh food in the capital climbed 2.5% in January from a year earlier, the fastest pace since last February, the internal affairs ministry said Friday. Overall price gains also sped up to 3.4%, the fastest clip in nearly two years, as the cost of fresh food jumped.