BOJ’s Himino Signals Timely Rate Hikes as Inflation Risks Rise

Bank of Japan Deputy Governor Ryozo Himino emphasized the need for timely interest rate hikes on Thursday as inflation risks intensify, strengthening market expectations that the BOJ could raise borrowing costs again in the near term.

Himino stopped short of signaling exactly when the next BOJ rate hike could occur, saying policymakers should conduct detailed assessments of inflation and economic conditions at every monetary policy meeting.

Japan’s economy has continued to withstand pressure from the Middle East conflict, but higher fuel costs and rising semiconductor prices driven by global artificial intelligence demand are adding to inflation. Himino also warned that a weak yen could have a stronger impact on prices than in the past.

He said policymakers should pay greater attention to upside inflation risks as underlying price growth approaches the BOJ’s 2% target. Allowing inflation to move persistently above that level could damage the economy and eventually require more aggressive monetary tightening.

Markets have been closely monitoring Himino’s comments because of his history of providing clues ahead of BOJ policy changes. Shotaro Mori, senior economist at SBI Shinsei Bank, described the remarks as generally hawkish and said the September BOJ meeting remains a potential opportunity for a rate increase.

Reuters has reported that the BOJ could raise interest rates as early as September and may consider accelerating the pace of tightening from roughly two increases per year. Recent hawkish comments from BOJ officials and stronger wholesale inflation have pushed markets toward nearly fully pricing in a September hike.

Japan’s wholesale inflation accelerated to 7.2% year-on-year in July, highlighting mounting price pressures that could eventually filter through to consumers.

The BOJ raised its key policy rate to a 31-year high of 1% in June before leaving rates unchanged in July. Himino argued that further tightening would not necessarily undermine the economy, as financial conditions remain accommodative.

He said gradually reducing monetary support through timely rate hikes could prevent inflation from surging and reduce the risk that the BOJ would later need to increase rates abruptly.