Japan’s core consumer inflation hit a fresh 41-year high in January as companies passed on higher costs to households, data showed on Friday, keeping the central bank under pressure to phase out its massive stimulus programme.

The data underscores the dilemma policymakers face as soaring prices of fuel and daily necessities hit households, many of whom have yet to see wages rise enough to make up for the higher cost of living.

The nationwide core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, was 4.2 per cent higher in January than a year earlier, matching a median market forecast and accelerating from a 4.0 per cent annual gain in December.

January’s rise was the fastest since September 1981, when fuel costs spiked and hit Japan’s import-reliant economy.

Core consumer inflation has now exceeded the Bank of Japan’s 2 per cent target for nine straight months, mostly reflecting persistent rises in fuel and raw material costs, the data showed.

“Inflation will probably peak in January but may not fall back below the BoJ’s 2 per cent target for some time,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

“But there are questions as to whether the rise in inflation will be sustainable, as it is still driven largely by food and fuel costs,” he said.

Incoming Governor Kazuo Ueda faces a challenge in sustaining the BoJ’s yield control policy, which has come under attack by markets betting strong inflation will force the bank to raise interest rates.

Speaking in parliament, Ueda said the BoJ must maintain ultra-low rates as the recent acceleration in inflation is driven largely by rising raw import costs, rather than strong demand.

“Japan’s trend inflation is likely to rise gradually. But it will take some time for inflation to sustainably and stably achieve the BOJ’s 2 per cent target,” he told a lower house confirmation hearing on Friday.

Upon approval by parliament, Ueda is expected to succeed incumbent Haruhiko Kuroda when his term ends in April. At Ueda’s debut policy meeting on April 28, the BoJ will release for the first time its inflation forecasts extending to fiscal 2025.

Japan’s economy averted recession in the fourth quarter of last year but rebounded much less than expected as business investment slumped.

While private consumption is holding up against headwinds from rising living costs, uncertainties over the global economic outlook will weigh on Japan’s delayed recovery from the scars of the COVID-19 pandemic, analysts say.

Earlier Bank of Japan (BoJ) board member Naoki Tamura on Wednesday warned of the risk of an overshoot in inflation and said the timing of an end to ultra-loose monetary policy will depend on economic, price and wage developments ahead.

He also said the central bank will weigh the pros and cons of its current policy framework, in deciding whether to take additional steps at its next meeting in March in response to the market’s breach of its 10-year bond yield cap.

“It’s true that at present, the deterioration seen in bond market function has not been fixed,” Tamura, a former commercial banker, told a news conference in the Japanese city of Maebashi.

“We’ll take into account economic, price and wage developments at the time” in determining the timing for normalising monetary policy, he added.

The remarks came amid heightening market expectations that recent rises in inflation will prod the BoJ to end its yield curve control (YCC) policy and begin hiking interest rates when dovish incumbent Governor Haruhiko Kuroda’s term ends in April.

Kazuo Ueda, an academic nominated by the government as Kuroda’s successor, will speak in parliament on Friday and next Monday, giving markets their first glimpse of his views on how soon the BoJ could phase out YCC.

In a speech delivered earlier in the day, Tamura repeated his view that the BoJ must at some point conduct a comprehensive assessment of its monetary policy framework by weighing the benefits of costs of current ultra-loose policy.

While stressing the need to maintain accommodative policy for now, Tamura said inflation could overshoot initial forecasts with services prices perking up and a growing number of companies passing on rising raw material costs to households. He also said prolonged ultra-low interest rates may be hampering innovation and preventing Japan’s productivity from heightening.

Under YCC, the BoJ guides short-term interest rates at -0.1 per cent and the 10-year bond yield around zero as part of efforts to sustainably achieve its 2 per cent inflation target.