Bank of Japan’s Himino calls for further rate rises as inflation risks build
Deputy Governor Ryozo Himino said underlying inflation was close to the central bank’s 2% target and warned that delaying further monetary tightening could harm Japan’s economy.
Bank of Japan Deputy Governor Ryozo Himino told Japan’s parliament on October 21 that the central bank should continue raising interest rates because underlying inflation was close to its 2% target and borrowing conditions remained loose, according to Reuters. His remarks put the risk of further price increases at the centre of the debate over the bank’s next rate decision.
Himino said financial conditions remained accommodative even after the bank raised its key rate last month. He pointed to low borrowing costs after adjusting for inflation and strong growth in bank lending. The September increase took the rate to 1.25%, its highest level in 31 years, Reuters reported.
Why Himino sees a case for higher rates
Himino said medium- and long-term inflation expectations were rising and that underlying inflation would likely converge with the bank’s target. He warned that delaying a necessary reduction in monetary support could allow inflation risks to materialise and damage the economy over the long run. His argument was that the earlier rate increase had left room for further adjustments, given the continued strength of lending and low real borrowing costs.
Higher fuel and raw-material costs were adding to price pressure, Himino told parliament. He also cited brisk global demand for artificial intelligence, which he said was supporting Japanese exports and capital expenditure. Reuters reported that Governor Kazuo Ueda had separately warned of a possible overshoot of the inflation target, citing the Middle East conflict, a weak yen and demand linked to AI.
What the Bank of Japan will consider next
The case for further rate rises predates Wednesday’s remarks. In an earlier speech in Saitama, Himino said the bank should continue increasing its policy rate as underlying inflation approached 2% while financial conditions remained accommodative. He said the timing and pace should depend on economic activity, prices and financial conditions, including risks from Middle East developments, AI-related demand and foreign-exchange rates.
The bank’s next two-day policy meeting ends on October 30. Reuters reported that it was expected to leave rates unchanged then, while it might raise its inflation outlook for the next fiscal year. Neither decision has been announced. The bank’s assessment of whether borrowing conditions are still supporting demand will shape how it weighs the risk of waiting against the effect of another increase.
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Sources and context
- Bank of Japan's Himino signals readiness to raise borrowing costsChannel NewsAsia, sourced to Reuters
- Speech by Deputy Governor HIMINO in Saitama (Japan's Economy and Monetary Policy)Bank of Japan
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