TOKYO (AP) -- Japan's consumer prices fell in 2012 for the fourth straight year, highlighting the central bank's challenge in fighting deflation as its governor Friday reaffirmed plans for aggressive monetary easing.
Bank of Japan Gov. Masaaki Shirakawa told reporters that it would take substantial effort to achieve a 2 percent inflation target, announced earlier this week, aimed at breaking a prolonged spell of falling prices that are thought to be discouraging business investment and stalling recovery for the world's third-largest economy.
The consumer price index, which excludes fresh foods, fell 0.1 percent in 2012, adding to pressure on the central bank to make progress in re-energizing the economy. The CPI also dipped 0.2 percent in December, as expected.
The central bank has pledged to do everything it can to meet the new inflation target declared under pressure from Prime Minister Shinzo Abe, who has made reviving the recession-stricken economy his top priority since taking office a month ago.
At the same time, Shirakawa cautioned, the central bank's role is also to ensure stability and prevent financial bubbles — a growing worry among those skeptical that massive stimulus spending and heavy-duty monetary easing will do the trick after 20 years of economic malaise.
"Bubbles take a heavy toll on the economy," Shirakawa said. "The causes for them are varied, but they keep recurring," he said.
With monetary authorities of all the major economies in stimulus mode, massive amounts of money are flooding into world markets. Japan's Nikkei 225 stock index surged 2.9 percent, or 305.78 points, on Friday to 10,926.60. It has risen nearly 10 percent since the beginning of the year.
Shirakawa also stressed the need for improved fiscal discipline.
"Long-term interest rates will jump and erode the effect of monetary easing" if the central bank appears to be carelessly buying government bonds to achieve its target inflation rate, he said. Japan's public debt is already more than twice the size of the economy and rising fast.
While the central bank agreed to the inflation benchmark and "unlimited" monetary easing through open-ended asset purchases, the government must do its part to push ahead with reforms needed to revive growth and improve Japan's competitiveness, he said.
Japan's monetary easing has contributed to a weakening of its currency — another of Abe's goals aimed at boosting the manufacturing sector by making Japanese products more price competitive overseas.
The yen was trading at 90.50 to the dollar late Friday, after hitting a two-and-a-half year low earlier in the day.
Finance Minister Taro Aso, meanwhile, fended off criticism that Japan is manipulating its currency — a criticism voiced by some of its trading partners who have said they fear the weaker yen could precipitate competitive devaluations.
Japan's monetary easing is aimed at combatting deflation, and the yen is in a correction after a long spell of appreciation, he said.
"Suggesting it is currency manipulation is completely off the mark," Aso told reporters.