BOJ deputy chief calls for more rate hikes on inflation risks

BOJ Deputy Governor Ryozo Himino spoke at a Saitama event on Thursday, advocating for additional rate hikes to address inflation concerns. He highlighted factors such as the weaker yen fueled by the Middle East conflict, surging semiconductor prices from global AI demand, and the yen's recent decline. Himino argued that timely rate increases would prevent price acceleration and future abrupt rate hikes, benefiting small and medium-sized enterprises and mortgage borrowers.

At a later press conference, Himino didn't specify when or by how much the next rate hike would occur, but he affirmed the central bank's intent to consider it at every meeting, including the upcoming one on September 17-18. The BOJ had left the benchmark rate unchanged in July after elevating it to a 31-year peak of 1.0 percent in June.

Market expectations for a September hike burgeoned after BOJ Governor Kazuo Ueda suggested "accelerating the pace of rate hikes" during a post-meeting press conference. A joint yen-buying intervention by Japanese and U.S. authorities on July 31 helped stabilize the currency, which had fallen due to a widening interest rate gap between the U.S. and Japan.

Some analysts anticipate a BOJ rate hike combined with a delayed U.S. Federal Reserve rate hike, which could narrow the interest rate differential and trigger yen-buying. Despite a brief surge in July when the yen reached 157 against the U.S. dollar, its value has been gradually slipping again. The yen's depreciation impacts the Japanese economy by raising import costs, prompting Himino to emphasize that while monetary policy does not target exchange rates, currency movements influence economic activity and prices.