Bank of Japan deputy governor says rate hikes likely to continue

[TOKYO] Bank of Japan Deputy Governor Ryozo Himino said on Monday the central bank is expected to gradually shift to a more neutral monetary policy stance by continuing to raise interest rates.

In a speech, Himino said the impact of past interest rate hikes on Japan’s economy appears to be limited so far.

While underlying inflation is rising steadily, it was still premature to assert it has reached 2 per cent for certain, Himino said.

He also said the inflation gap, or the difference between underlying inflation and the BOJ’s 2 per cent inflation target, was slightly negative now but was likely to approach zero in the future.

“This would suggest that, while the Bank’s policy remains somewhat accommodative, it should gradually shift to a more neutral stance through moderate policy rate hikes,” he said in a speech.

Himino did not comment on the pace and timing of future rate hikes, saying the decision should be based on a comprehensive assessment of various data available at the time.

The BOJ ended a decade-long, massive stimulus in 2024 and raised rates in several steps including in December, on the view Japan was making steady progress in durably achieving its 2 per cent inflation target.

With the weak yen pushing up import costs and broader inflation, markets had bet the BOJ could raise rates again to 1 per cent from the current 0.75 per cent as soon as March or April.

The weekend US-Iran crisis could complicate the BOJ’s rate-hike decision by weighing on growth and pushing up prices through a spike in crude oil prices, analysts say.

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Himino said it was essential to closely monitor market moves as they affect economic activity and prices, but warned the market response to monetary policy was far from straightforward.

“Reacting to every fluctuation in the market could lead to the Bank being second-guessed by speculators,” Himino said. “Rather, we should make it a priority to gain confidence of market participants that it is duly conducting monetary policy in line with developments in economic activity and prices.” REUTERS