Bank of Japan (BoJ) Deputy Governor Ryozo Himino stated on Thursday that the central bank should persist in raising the policy rate and adjust monetary support in response to economic, price, and financial trends [1]. Himino emphasized that the risk of the Japanese economy facing a severe downturn has diminished, and that Japan's financial conditions remain accommodative, supporting the economy [1]. He noted that while a weak yen boosts profits for global firms, it also weighs on household real income and pushes up inflation [1].
Himino highlighted the importance of scrutinizing the various effects of the weak yen on the economy, stressing that although monetary policy is not aimed at controlling foreign exchange rates, FX moves are among the key factors affecting the economy and prices [1]. He warned that FX movements could influence underlying inflation through changes in inflation expectations and that real interest rates remain negative in the short- and medium-term [1].
The Deputy Governor stated that it is desirable to avoid a situation where a delay in rate hikes leads to sharp inflation, which would then require rapid rate increases [1]. He argued that accommodative monetary conditions are currently positive for the economy, but the BoJ should continue to raise the policy interest rate and adjust the degree of monetary accommodation according to developments in economic activity, prices, and financial conditions [1]. Himino also pointed out that rising global AI demand is expected to push up both the economy and prices [1].
Looking forward, Himino said the BoJ must pay greater attention to upside risks to prices than in the past and that stabilizing underlying inflation at around 2% is important [1]. He cautioned that if underlying inflation deviates above the 2% price stability target, it could adversely impact the economy [1]. Policy guidance, he noted, should focus more on the outlook and risks rather than just underlying economic conditions, and effective use of monetary policy can prevent the economy from deviating from a path toward sound development [1].
CONCLUSION
BoJ Deputy Governor Himino's remarks indicate a cautious but persistent approach to raising interest rates, with a focus on inflation risks and the effects of a weak yen. The central bank is prioritizing forward-looking assessments and aims to stabilize inflation around 2%, signaling ongoing adjustments to monetary policy in response to evolving economic conditions.