The Bank of Japan’s Deputy Governor, Ryozo Himino, has hinted at a potential interest rate hike during the upcoming policy meeting on January 23-24. In an interview last Friday, Himino stressed the need to address “negative real rates,” which he believes are no longer normal as Japan moves past a period of deflation. Himino’s comments come amidst rising import prices, which he described as “quite high.” However, he expressed optimism about this year’s wage outlook, suggesting that improved wages could support inflation, a crucial factor in the BOJ’s decision-making process.
The Deputy Governor’s remarks are significant as they precede the Bank of Japan’s next policy meeting, where decisions on monetary policy, including interest rates, will be made. Analysts are closely monitoring for any signs of a rate hike, as it would signal a shift from the central bank’s prolonged accommodative stance.
Rate hike hints at BoJ meeting
“We must hike ‘without delay’,” Himino stated, emphasizing the urgency of the potential policy shift. Himino noted that inflation expectations have risen from below one percent to around one and a half percent, with the BoJ aiming to achieve a price stability target of 2 percent in a sustainable and stable manner. He stressed that achieving this target depends on actual inflation rates aligning with the envisioned expectations.
The BoJ is currently updating its outlook for Japan’s economic activity and prices based on the latest data, with an updated outlook report expected next week. Himino acknowledged the difficulty and importance of determining the timing of policy changes, noting that it is not normal for real rates to remain negative for extended periods once deflationary factors dissipate. Market reaction saw the Japanese Yen come under renewed selling pressure, initially dropping to test 158.00 before reversing to near 157.50.