Bank of Japan (BOJ) Deputy Governor Ryozo Himino told lawmakers Wednesday, Oct. 21, that Japan’s underlying inflation was nearing the central bank’s 2% goal and argued rates should keep rising while financial conditions remained accommodative, Reuters reported.
Reuters reported that Himino expected the measure to move toward levels consistent with the target as medium- and long-term inflation expectations rise. He pointed to higher fuel and raw-material costs, alongside global demand for artificial intelligence that has supported Japanese exports and business investment, as factors adding pressure to prices.
The remarks followed the BOJ’s Sept. 18 decision to raise its uncollateralized overnight call-rate target from around 1% to around 1.25%. The Policy Board approved the move by a 7-2 vote, with the new target taking effect Sept. 24; the previous level had been set in June. In September, the BOJ said the underlying CPI trend was nearing 2%, described financial conditions as supportive and said real rates remained low.
The bank’s September statement also cited high crude oil prices, yen depreciation, the pass-through of higher costs to prices and rising medium- to long-term inflation expectations. It has said future rate decisions will depend on its assessment of economic activity, prices and financial conditions.
The BOJ distinguishes underlying inflation from temporary movements in individual prices, such as oil or rice. In an Aug. 27 speech, Himino said the trend cannot be measured precisely, so policymakers consider several indicators, including inflation expectations and wage trends.
Himino has also described a cost of higher rates: they increase nominal interest payments for small and midsize businesses and mortgage borrowers. In his August speech, he said earlier adjustments could reduce the risk of inflation accelerating and requiring sharper rate increases later. EconoTimes previously covered Himino’s warning that delayed rate increases could hurt Japan’s economy.
Himino gave no timing or size for a further increase. Reuters, citing unnamed sources, reported that the BOJ was expected to keep rates unchanged and might raise its inflation outlook for the next fiscal year. The BOJ’s next policy meeting is scheduled for Oct. 29-30.
