BoJ’s Himino: Persist in raising rate, adjust monetary support based on economic, price
Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Thursday that central bank should persist in raising policy rate and adjust monetary support based on economic, price, and financial trends.
Key quotes
Risk of economy facing severe downturn has diminished.
Weak yen boosts global firms' profits but weighs on household real income.
Want to scrutinise various effect weak yen has on economy.
Core role of boj is to ensure that everyone can use the yen as a currency with confidence and efficiently.
Monetary policy isn't aimed at controling fx rates but fx moves are among key factors that affect economy, prices.
Must be mindful that fx moves could affect underlying inflation through changes in inflation expectations.
Real interest rates are negative in short-, medium-term zone.
Japan's financial conditions remain accommodative, supporting economy.
Desirable to avoid situation where delay in rate hike leads to sharp inflation, require rapid rate hikes thereafter.
Accomodative monetary condition will be positive for economy.
Rising global AI demand will push up both economy, prices.
Weak yen works to push up inflation.
Believe BoJ should continue to raise the policy interest rate and adjust the degree of monetary accommodation in accordance with developments in economic activity, prices, and financial conditions.
Must be mindful of upside price risks more than ever before.
Important to stabilise underlying inflation at a level around 2%.
We will debate at each policy meeting taking into mind such risks.
If underlying inflation deviates upward to a level above the price stability target of 2%, that would have an adverse impact on the economy.
In guiding policy we must look at various factors.
We should pay greater attention to the upside risk to prices than in the past.
Main factor in guiding policy is not underlying economic conditions but outlook and risks.
It will take time for monetary policy to affect prices.
Effective use of monetary policy can prevent economy deviating from path toward sound development.
The biggest challenge in our communication lies in the matter of time horizons.
As financial conditions remain accommodative, I believe we need to ease off the accelerator in a timely manner, continue to raise policy rate.
Monitoring current conditions is fundamental to the assessment of the outlook and risks, but the policy debate tends to put more weight on the future outlook and risks.
In easing off the accelator and raising rates, we must carefully check road conditions ahead taking into account weather forecast and other information.
Focusing solely on immediate reactions may risk losing sight of the whole range of implications of a policy change.
Downward pressure on the economy and upward pressure on prices will therefore materialize, but the risk of availability problems causing major economic downturns has diminished.
Market reaction
At the time of writing, the USD/JPY pair is down 0.04% on the day at 159.24.
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.
