BoJ’s Himino: Persist in raising rate, adjust monetary support based on economic, price

On Thursday, Bank of Japan Deputy Governor Ryozo Himino emphasized the importance of persisting in raising policy rates and adjusting monetary support according to economic, price, and financial trends. Himino expressed that the risk of a severe economic downturn has decreased. The weak yen has benefited global corporations' profits but adversely affected household real income.

Himino stressed the need to examine the diverse impacts of a weak yen on the economy. He reiterated that the Bank of Japan's primary role is to ensure confidence and efficiency in using the yen as currency. Himino clarified that the central bank's monetary policy does not aim to control foreign exchange rates, but exchange rate fluctuations are among the key factors influencing the economy and prices.

He highlighted the necessity of considering that exchange rate movements could impact inflation through changes in inflation expectations. The Japanese financial conditions remain accommodative, supporting the economy. Himino warned against delaying rate hikes, as it could lead to a sharp inflation spike followed by rapid hikes.

He affirmed that an accommodative monetary condition would be positive for the economy. Himino predicted that rising global demand for AI would boost both the economy and prices. He emphasized the need to focus more on upside price risks than ever before. Himino stressed the importance of stabilizing underlying inflation around 2%.

He assured that the Bank of Japan would discuss various risks at each policy meeting, considering such factors. If underlying inflation deviates upward above the 2% price stability target, it could have adverse effects on the economy. Himino urged policymakers to examine multiple factors when guiding monetary policy. He stressed the importance of paying greater attention to the upside risks to prices in recent times.

Himino reiterated that the primary factor in guiding policy is not just the underlying economic conditions but the outlook and risks. He acknowledged that it would take time for monetary policy to affect prices effectively. Himino maintained that effective use of monetary policy can prevent the economy from deviating from the path of sound development.

The biggest challenge in communication for Himino lies in addressing time horizons. He believed that with accommodative financial conditions, they needed to ease off the accelerator in a timely manner and continue raising policy rates. Himino advised monitoring current conditions to assess the outlook and risks but cautioned that the policy debate often puts more emphasis on the future outlook and risks.

He stressed the need to carefully check road conditions ahead while considering weather forecasts and other information. Himino highlighted that downward pressure on the economy and upward pressure on prices would materialize, but the risk of availability problems causing a major economic downturn had diminished. As of the writing date, the USD/JPY pair had decreased by 0.04% on the day at 159.24.

The Bank of Japan is Japan's central bank, responsible for setting monetary policy to maintain price stability, targeting an inflation rate around 2%. In 2013, the Bank embarked on an ultra-loose monetary policy to stimulate the economy and fuel inflation amid a low-inflationary environment. Japan's monetary policy, based on Quantitative and Qualitative Easing (QQE), involved printing banknotes to purchase assets like government and corporate bonds to provide liquidity.

In 2016, the Bank doubled down on its strategy by introducing negative interest rates and directly controlling the yield of its 10-year government bonds. In March 2024, the Bank lifted interest rates, marking a retreat from the ultra-loose monetary policy stance.