BOJ Deputy Governor Calls for Further Rate Hikes Amid Weaker Yen

The Bank of Japan's deputy governor, Ryozo Himino, has called for further rate hikes to combat inflation and address the weaker yen. In a speech on August 27, Himino stated that monetary policy should focus more on the upside risk to prices than in the past.

Citing higher crude oil prices due to the Middle East conflict, rising semiconductor prices driven by AI-related demand, and the yen's fall as factors, Himino emphasized the need for timely rate hikes. He believes this will help avoid inflation acceleration and abrupt rate hikes in the future.

The central bank left its benchmark rate steady at 1% in July after a 31-year high, but markets expect a hike in September. BOJ governor Kazuo Ueda had hinted at 'speeding up the pace of rate hikes' if necessary in July. The joint yen-buying intervention by Japan and the US on July 31 to stem the yen's fall also contributed to expectations for a September hike.

Himino stressed that monetary policy does not target exchange rates, but the yen's depreciation has an impact on economic activity and prices, with a stronger pass-through from exchange rates to prices. The BOJ will consider rate hikes at every meeting, including the next one on September 17-18.