TOKYO – The Bank of Japan should continue to raise its key policy rate, deputy governor Ryozo Himino said on Aug 27, stressing the weaker yen’s impact on inflation, with his comments coming as the market widely expects a rate hike at the next policy meeting in September.
“We should pay greater attention to the upside risk to prices than in the past,” he said at a business event in Saitama, near Tokyo, citing higher crude oil prices stemming from the Middle East conflict, rising semiconductor prices driven by the increase in global AI-related demand, and the recent yen’s fall as factors.
“Raising rates in a timely manner will help avoid inflation acceleration and abrupt rate hikes in the future,” serving the best interests of small- and medium-sized firms and mortgage borrowers, he said.
At a press conference, Himino did not offer clear signals about the timing or the pace of the next rate hike but said the central bank will consider it at every meeting, including the next one on Sept 17-18, by looking at whether prices and economic activity are moving within expectations.
At its previous meeting in July, the central bank left the benchmark rate steady, after lifting it to a 31-year high of 1 per cent in June.
After BOJ governor Kazuo Ueda referred to “speeding up the pace of rate hikes”, if necessary, at a post-meeting press conference in July, financial markets began to anticipate a rate hike in September.
Previously, the market expected the bank to raise the rate once every six months, which would have meant a hike in December following the increase in June.
A joint yen-buying intervention by the Japanese and US authorities during New York trading hours on July 31 to stem the yen’s fall also led to expectations for a September hike, as doing so may help curb the Japanese currency’s depreciation.
The yen’s fall against the greenback in recent years is partly attributable to the wide US-Japan interest rate differential.
Some market participants expect a BOJ rate hike, coupled with the US Federal Reserve delaying its own rate hike, would spur yen buying by narrowing the interest rate differential.
The first Japan-US joint market intervention in 15 years sent the currency surging to the 157 yen level after hitting 163.99 on July 23, its weakest level since 1986. But it has since gradually weakened once again, moving in the 159 yen zone in recent days.
The yen has faced selling pressure amid mounting fears about Prime Minister Sanae Takaichi’s expansionary fiscal policy and how it will be funded. A weak yen poses risks to the Japanese economy by inflating import costs.
Himino stressed in the speech that while monetary policy does not target exchange rates, the yen’s depreciation has an impact on economic activity and prices and the “pass-through from exchange rates to prices seems to be getting stronger”. KYODO NEWS
