Bank of Japan Deputy Governor Signals Continuation of Rate Hikes as Weak Yen Fuels Inflation Pressure

Bank of Japan Deputy Governor Ryozo Himino said Thursday, during a meeting with local leaders in Saitama, that policy rates should continue to rise as underlying inflation nears 2% and financial conditions remain accommodative. He stated, “the Bank should continue to raise the policy interest rate and adjust the degree of monetary accommodation.” Himino added that the June increase to 1% was “an adjustment in the degree of monetary accommodation, not a tightening,” emphasizing that policymakers must now pay greater attention to upside inflation risks as the economy approaches sustained 2% inflation.

Exchange‑rate dynamics featured prominently in his assessment. Himino stressed, “monetary policy does not target exchange rates, but exchange rates have an impact on economic activity and prices,” noting that the pass‑through from currency moves to consumer prices “seems to be getting stronger.” A weaker yen can support exporters and inbound tourism, but it also raises import costs, pushes up consumer prices, and squeezes household real incomes. More importantly for policy, a stronger pass‑through means persistent yen depreciation can lift underlying inflation through expectations even though the BoJ does not explicitly target the exchange rate.

Himino argued that timely normalization would reduce the risk of having to tighten more abruptly later, saying, “raising rates in a timely manner will help avoid inflation acceleration and abrupt rate hikes in the future.” His remarks reinforce a hawkish stance at the BoJ: further hikes are likely if inflation continues to firm, while yen weakness increasingly matters through its inflation transmission rather than as a standalone objective. Although timing remains data‑dependent, Himino’s framing suggests the debate has shifted from whether the BoJ should normalize further to how quickly it should do so.

Key Takeaways

• Himino said the Bank should keep raising its policy interest rate and calibrate the degree of monetary accommodation.
• He described the June move to a 1% rate as an adjustment of accommodation, not a tightening, indicating policy remains loose.
• Himino noted that monetary policy does not target exchange rates, yet acknowledged that currency levels affect activity and prices.
• He observed that the pass‑through from exchange‑rate changes to inflation “seems to be getting stronger,” making yen weakness more relevant to the BoJ’s reaction function.
• He warned that timely rate increases can avert future inflation acceleration and the need for abrupt hikes.
• Overall, his comments underscore a hawkish normalization bias, with a weak yen adding to inflation pressure even though the BoJ does not target the currency directly.

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