The BOJ deputy governor signaled that it will continue to raise rates. Ahead of the September policy meeting, the possibility of an additional hike is being considered against a backdrop of inflation risks, yen depreciation and higher crude oil prices.
Bank of Japan Deputy Governor Himino Ryōzō (氷見野良三) said in a speech in Saitama City that financial conditions are currently accommodative, stating that the BOJ would “continue to raise the policy rate and adjust the degree of monetary easing,” thereby leaving open the possibility of further rate hikes.
He stressed that the risk of inflation rising above the BOJ’s 2% target needs to be “considered more seriously than before” as crude oil prices rise amid growing instability in the Middle East and the yen continues to weaken.
The BOJ will hold its next meeting on 17 and 18 September. The market is pricing in an over 80% probability that the BOJ will decide on a rate hike at its September meeting, putting the bank’s decision in focus.
Himino also said that the policy rate would be “thoroughly discussed” at every Monetary Policy Meeting. He expressed the view that it would be preferable for small and medium-sized businesses, mortgage borrowers and public finances to prevent in advance a situation in which delayed rate hikes allow inflation to accelerate and force the BOJ into abrupt increases.
He also said that “exchange-rate fluctuations have become more likely to affect prices,” expressing concern over the impact of further yen depreciation. He added that stronger demand related to artificial intelligence (AI) could also contribute to higher prices. At its June meeting, the BOJ raised the policy rate to around 1.0%, its highest level in about 31 years.
If the BOJ decides on an additional rate hike at its September meeting, about 3 months later, the pace of rate increases could be faster than before.