ICYMI – BOJ deputy governor signals rate hikes if economic conditions align with forecasts

Justin had the remarks from Bank of Japan (BOJ) Deputy Governor Ryozo Himino yesterday;

• BOJ’s Himino says will raise rates if economy, prices move in line with forecast

I think they were significant.

Himino seems to have become a ‘go to’ official to convey BoJ messaging. Himino reinforced the central bank’s commitment to an accommodative monetary policy but acknowledged that interest rate hikes would follow if economic growth and inflation evolve as expected. Speaking on Thursday, Himino noted that while Japan is still some distance away from achieving positive real interest rates, a shift could occur if inflationary pressures sustain and deflationary factors dissipate.

“If our economic and price forecasts are achieved, we will raise our policy rate accordingly and adjust the degree of monetary support,” Himino said, underscoring the BOJ’s data-dependent approach. The BOJ recently raised its policy rate to 0.5% from 0.25%, betting that sustained wage growth will keep inflation anchored around the 2% target.

Himino emphasized that Japan’s current negative real interest rate environment is partly justified due to economic shocks and lingering deflationary risks. However, he cautioned that maintaining negative real rates indefinitely would be abnormal if such pressures fade. He also noted that factors influencing neutral real interest rates extend beyond demographics, encompassing broader economic and financial conditions.

An ideal economic trajectory, according to Himino, would see growth leading to higher wages and corporate profits, which in turn would stimulate consumption and investment, fostering moderate inflation. However, he acknowledged concerns about Japan’s estimated output gap, which has not improved significantly despite persistently negative real interest rates.

His comments suggest that the BOJ’s March policy meeting could be a live one, with markets closely watching for signs of a potential shift in Japan’s monetary stance.

This article was written by Eamonn Sheridan at www.forexlive.com.