BoJ’s Himino: Central bank likely to keep hiking rates based on economic, price, financial trends
Bank of Japan (BoJ) Deputy Governor Himino said on Friday that the Japanese central bank likely to keep hiking rates based on economic, price and financial trends. Himino added that "currency moves may impact inflation expectations, core inflation, so we will keep monitoring developments closely."
Key quotes
Central bank likely to keep hiking rates based on economic, price, financial trends.
Central bank to weigh pace and timing of rate increases, focusing on baseline scenario probability and risks.
Core inflation nearing 2% threshold.
Recent price increases not only from temporary supply shock, risk of core inflation straying from target.
Rising oil prices drag on growth, but Japan’s economy remains robust on strong corporate profits and household income.
Currency fluctuations among key factors influencing Japan’s economy, prices.
Monetary policy not aimed at currency moves, but FX fluctuations now affect inflation more due to shifts in corporate behavior.
Currency moves may impact inflation expectations, core inflation, so we will keep monitoring developments closely.
BoJ's decision to pause bond taper takes into account its view it will take time for banks, individuals to increase bond buying, not aimed at heeding fiscal policy.
Delay in dealing with price risks could lead to risk of inflation overshoot materialising, hurt economy long term.
Wages are rising including for smaller firms with some seeing this year's wage hike pace exceeding that of last year.
Prices for wide range of goods, services rising moderately.
Consumption is resilient, which gives demand boost to prices.
Mechanism by which wages and prices rise in tandem becoming embedded in economy.
In setting our bond buying plan, what's most important is to allow markets to freely set prices.
We actively exchange views with overseas authorities but in the end we make our own decision on policy.
Won't comment on market pricing of future rate hikes.
Impact of rising fuel costs on CPI will likely become bigger around summer this year.
Even if price rises are driven by supply shock, if that leads to broad-based price rises and affect underlying inflation, we need to consider taking policy action.
There are also demand-driven factors to recent price rises as robust corporate profits, steady wage gains, brisk ai-related demand underpinning Japan's economy.
Market reaction
At the time of writing, USD/JPY is down 0.06% on the day at 161.21.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
