Himino’s direct call for “timely” rate hikes, delivered in his own words rather than through analyst interpretation, sharpens the hawkish read markets had already been building around this speech. His framing of the choice as timely, gradual tightening versus a future spike requiring abrupt hikes gives the BOJ a clear rationale for moving sooner rather than later, and reinforces September as a live meeting. The explicit flag on yen weakness as an accelerant to inflation keeps FX front and centre in the BOJ’s reaction function, with any further yen softness now more directly linked to hike risk. Combined with his comment that policy should distribute capital more efficiently toward growth investment, the remarks read as a comprehensive case for easing off accommodative settings, not just a data-dependent caveat.
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Earlier:
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Himino didn’t just flag hike risk, he made the explicit case for moving on rates before inflation forces the BOJ’s hand.
Summary:
- Himino said raising rates in a timely manner would help avoid a future spike in inflation requiring abrupt hikes
- He said inflation deviating above the BOJ’s 2% target would hurt the economy, and the board should weigh upside price risks more heavily than in the past
- Himino called for in-depth deliberation on these risks at every policy meeting
- He said adjusting still-loose financial conditions via rate hikes would help distribute assets more efficiently toward growth investment
- With underlying inflation nearing 2%, he said the BOJ’s focus should be on stabilising price growth around that level
- He flagged a weak yen as a factor that could push up inflation faster than in the past, and said FX moves are among the key inputs guiding policy
- Himino said the BOJ needs to “ease off” accommodative settings in a timely way, weighing economic, price and financial data as it does so
Bank of Japan Deputy Governor Ryozo Himino made his most direct case yet for near-term rate hikes on Thursday, telling business leaders in Saitama that raising rates in a timely manner would help the central bank avoid a future spike in inflation that could force more abrupt tightening later.
“If underlying inflation deviates above our 2% target, that would have an adverse impact on the economy. We should pay greater attention to upside risks to prices than in the past,” Himino said, adding that in-depth deliberations on these risks should take place at every monetary policy meeting.
The remarks build directly on the hawkish framing markets had anticipated heading into the speech, with Commonwealth Bank of Australia having flagged in advance that Himino’s address would offer the BOJ a chance to validate or push back against pricing for a 25 basis point hike in September. Himino’s own language, calling explicitly for timely hikes rather than simply acknowledging inflation risk, leans toward validation.
Himino also linked the case for tightening to capital allocation, saying that adjusting still-loose financial conditions through rate hikes would help distribute assets more efficiently toward investment with genuine growth potential. With underlying inflation now approaching the BOJ’s 2% target, he said the central bank’s focus should shift to stabilising price growth around that level rather than continuing to nurture it higher.
On the yen, Himino said a weak currency could push up inflation at a faster pace than in the past, and confirmed that the impact of exchange-rate moves on prices is among the key factors the BOJ weighs in setting policy, a notable acknowledgment given the bank’s usual reluctance to tie monetary policy directly to currency levels.
“As we are still pressing on the accelerator, or keeping financial conditions accommodative, I believe we will need to ease off in a timely manner through rate hikes,” Himino said, adding that the BOJ will need to check a range of economic, price and financial data as it weighs the timing of that move. The comments add to a week of central bank signalling already dominated by the Bank of Korea’s back-to-back hike and hawkish commentary out of Australia, and will keep September’s meeting firmly in focus for currency and rates markets.
This article was written by Eamonn Sheridan at investinglive.com.