BOJ’s Himino calls for ‘timely’ rate hikes amid rising inflation risks

Bank of Japan Deputy Governor Ryozo Himino on Thursday called for "timely" interest rate increases, delivering his clearest signal yet that the central bank is preparing to tighten policy further as inflation risks mount ahead of the September policy meeting.

Himino Flags Upside Inflation Risks

Speaking to business leaders in Urawa, near Tokyo, Himino warned that allowing underlying inflation to overshoot the BOJ's 2% target would damage the economy and said policymakers "should pay greater attention to upside risks to prices than in the past."reuters

"As we are still pressing on the accelerator, or keeping financial conditions accommodative, I believe we will need to ease off in a timely manner through rate hikes," Himino said, according to Reuters. He identified yen weakness as a factor that "could push up inflation at a faster pace than in the past" and said exchange-rate effects on prices would be among the key considerations guiding policy.finance.yahoo+1

Himino added that adjusting still-loose financial conditions would help distribute capital more efficiently toward investment with growth potential.finance.yahoo

September Hike Expectations Intensify

The speech lands against a backdrop of rapidly shifting market expectations. Money markets were pricing an 87% probability of a rate hike at the BOJ's September 17-18 meeting before Himino spoke, according to data from Totan Tanshi. A Reuters poll conducted August 17-24 found 57% of economists now expect a move to 1.25% next month, up from just 5% who anticipated any third-quarter increase in July's survey.vtmarkets+1

The terminal rate outlook has shifted even more dramatically. Half of respondents now place the peak policy rate at 1.75%, up from 19% a month earlier, while those selecting 2% or above rose to 36% from 23%. Nearly two-thirds of analysts project the rate will reach at least 1.5% by end-March 2027.ebc+1

Market Reaction Muted as Hike Already Priced

USD/JPY barely moved following the remarks, trading around 159.2 — a sign that markets had already absorbed the hawkish message. Ayako Fujita, chief Japan economist at JPMorgan Securities ↗ 2.27%, framed the risk in reverse: with a September move largely discounted, postponing it would now be the destabilizing outcome.ebc

Two more BOJ board speeches are scheduled before the September decision — board member Hajime Takata on September 2 and Kazuyuki Masu on September 10 — offering further opportunities to firm or soften the signal on pace.investinglive