TOKYO: The Bank of Japan (BOJ) hopes to maintain its 2 percent inflation target even if climate change causes long-term shocks to future price developments, Governor Kazuo Ueda said on Saturday.

But Ueda said the BOJ would “carefully monitor” how the economic impact of climate change, as well as the fallout from government measures to promote the green transition, could affect inflation expectations.

“We would like to keep the inflation target at the current level,” even if climate change-related shocks occur, Ueda said at a conference in Basel, followed live on YouTube. “But I am of course concerned about the impact this will have on inflation expectations.”

Japan will likely introduce a carbon tax in the future, which could affect inflation expectations, Ueda said at the conference organized to discuss the impact of climate change on the economy and monetary policy.

Government subsidies to promote the green transition could also create inflationary pressures in the short term, although Japan can “adapt to such inflationary forces for some time” as core inflation is currently still lower at 2%, he said.

As part of its green transition strategy, the Japanese government will provide fiscal support worth 20 trillion yen ($131 billion), or 3 percent of the country’s gross domestic product (GDP), to companies that will invest in environmentally friendly technologies over the next 10 years.

In the second phase of the strategy, the government plans to introduce carbon pricing and establish a full-fledged emissions trading system in the 2026 financial year, and impose a surcharge on fossil fuels in fiscal year 2028.

The conference was co-organized by the Bank for International Settlements, the BOJ, the Bank of Spain and the Network for a Greener Financial System.

($1 = 152.6300 yen)