BOJ Deputy Governor Warns of Greater Inflation Risks, Hints at Further Rate Hikes

All Eyes on the September Policy Meeting

The Bank of Japan (BOJ) has announced that it will consider further interest rate hikes, taking into account the possibility that inflation could exceed its 2% target.

According to Bloomberg News on August 27, BOJ Deputy Governor Ryozo Himino stated during a lecture in Saitama City, "We need to be aware of the upside risks to inflation even more than before," adding, "We will thoroughly discuss the timing and pace of interest rate hikes at every monetary policy meeting." The next policy meeting is scheduled for September 17-18.

Bank of Japan (BOJ) Tokyo headquarters building. Photo by Reuters Yonhap News

In particular, he emphasized that the possibility of the inflation rate surpassing the BOJ’s target of 2% should be factored into policy decisions. Deputy Governor Himino stated, "Policy decisions are shifting to a phase where we must consider whether there is a possibility that the inflation rate will exceed 2%."

This is being interpreted as a sign that the BOJ may become more proactive in raising interest rates than before. In the previous month, the BOJ left its policy rate unchanged during the monetary policy meeting, but Governor Kazuo Ueda highlighted the upside risks to inflation and mentioned that the pace of rate hikes could accelerate.

Deputy Governor Himino also stated on this day, "Given that current financial conditions remain accommodative, we will continue to raise policy rates and gradually adjust the degree of monetary easing."

The recent depreciation of the yen, with the currency nearing 160 yen per dollar, is also cited as a factor increasing pressure on the BOJ to raise interest rates. With the Japanese government intervening in the foreign exchange market to curb the yen’s weakness, and the U.S. also joining in buying yen, there is rapidly growing speculation in the market that the BOJ could raise rates sooner than expected.

Deputy Governor Himino commented, "Monetary policy is not intended to control exchange rates," but also acknowledged, "Exchange rate movements are an important factor influencing the economy and prices." He especially stressed that the impact of exchange rate fluctuations on inflation has become larger than in the past, and cautioned that it is necessary to pay attention to the possibility that the inflation rate, excluding temporary factors, could rise further.

In fact, there is growing expectation in the market that the BOJ will decide on an additional rate hike at its next meeting. Think tank Totan Research estimated on the previous day (August 26) that the probability of a rate hike decision at the upcoming meeting is 87%.

This content was produced with the assistance of AI translation services.