FX.co ★ BoJ Himino Highlights Need for Timely Rate Hikes

The Bank of Japan remains vigilant about upside risks to inflation and will consider the need for additional interest rate increases as financial markets increasingly price in another hike, Deputy Governor Ryozo Himino said in a speech on Thursday.

“It is important to stabilise underlying inflation at around 2%,” Himino noted, adding that inflation running above the 2% price stability target could damage the economy and therefore deserves more attention than in the past.

He said the central bank will closely examine risks to its economic outlook, including the situation in the Middle East, foreign-exchange developments, and stronger demand related to artificial intelligence.

Himino also argued that raising interest rates in a timely manner could help prevent an acceleration in inflation and reduce the need for abrupt, larger hikes later on, ultimately benefiting smaller businesses, mortgage borrowers and public finances.

He emphasised that the timing and pace of any policy adjustment will depend on how likely the Bank of Japan’s baseline scenario for economic activity and prices is to materialise, as well as the balance of risks surrounding that outlook.