BoJ’s Himino says will balance economic data and inflation risks on rates

Bank of Japan Deputy Governor Ryozo Himino stated on Thursday that the central bank will make decisions regarding interest rates by carefully weighing economic data and inflation risks. Himino emphasized that the BoJ must acquire up-to-date information on the economy, financial conditions, and act promptly to prevent being caught off-guard by inflation.

Currently, there are no indications of a specific distortion in the Japanese government bond (jgb) market, enabling the BoJ to continue its existing bond tapering plan. The BoJ will, however, adjust policy if it gains additional insight into economic, price, and financial developments. The deputy governor highlighted that the underlying inflation rate is approaching the 2% target set by the central bank.

As of the writing of this report, the USD/JPY pair has risen by 0.02% to 159.35. The Bank of Japan, based in Japan, is responsible for monetary policy to maintain price stability, aiming for an inflation target of approximately 2%. The BoJ initiated an ultra-loose monetary policy in 2013 to stimulate the economy and promote inflation amidst a low-inflation environment.

In 2016, the bank intensified its strategy by introducing negative interest rates and directly controlling the yield of 10-year government bonds. In March 2024, the BoJ raised interest rates, marking a departure from its ultra-loose monetary policy stance. This shift in policy led to a weakening of the Japanese Yen against other major currencies, which in turn contributed to rising Japanese inflation exceeding the BoJ's 2% target.

The prospect of increasing wages in Japan also played a role in driving inflation. Lallalit Srijandorn, a Parisian currently residing in Paris and Bangkok, mentioned the GBP/USD pair as consolidating near the lower end of its weekly range below the 1.3600 mark during the Asian session. Traders are awaiting further cues about the US Federal Reserve's interest rate trajectory before making any new directional bets.

Meanwhile, the EUR/USD pair edged higher to around 1.1655 during the early Asian session, supported by a hawkish stance by the European Central Bank. The cryptocurrency market remains positive, with Bitcoin sustaining gains above $78,000 and the US July PCE Price Index inflation reported higher than expected, indicating persistent inflationary pressures.