BOJ Deputy Governor Warns of Inflation Risks, Timely Rate Hikes Ahead

Bank of Japan (BOJ) Deputy Governor Ryozo Himino emphasized the need for timely interest rate hikes to address mounting inflation risks. In a speech to business leaders, Himino noted that the economy was weathering the impact of the Middle East conflict but warned that elevated fuel costs and rising chip prices from global AI demand were pushing up inflation.

A weak yen could also accelerate inflation, Himino said, adding that exchange-rate moves have a significant impact on inflation. He emphasized the importance of monitoring price pressures and adjusting interest rates accordingly to avoid a spike in inflation and abrupt rate hikes in the future.

Himino's comments reinforced dominant market expectations for a near-term increase in borrowing costs. The BOJ has been under pressure to raise interest rates, with sources suggesting that a September hike is likely. Himino did not rule out the possibility of a September rate hike but stressed the need for 'in-depth deliberations' at each policy meeting.

Some analysts have argued that hiking rates further could hurt a fragile economy, but Himino countered this view by saying that adjusting still-loose financial conditions would help distribute assets more efficiently to investment with growth potential. He noted that underlying inflation is approaching 2% and emphasized the need for stabilizing price growth around that level.