BoJ’s Himino says underlying inflation almost at 2% target
Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Wednesday that underlying inflation is almost at the 2% target, adding that financial conditions still accommodative.
Key quotes
Strong AL demand driving up capex, exports.
Underlying inflation almost at 2% target.
Underlying inflation likely to align with Bank of Japan target.
Medium- and long-term inflation expectations continue rising.
Financial conditions still accommodative.
Real interest rates stay low, bank lending expands rapidly.
Postponing policy changes could trigger inflation risks, damage economy.
Upside price risks elevated.
Stable prices via suitable monetary policy would boost Japan’s sustainable growth.
Market reaction
At the time of writing, the USD/JPY pair is up 0.13% on the day at 158.35.
BoJ’s Himino flags rising inflation risks, keeping Yen underpinned
BoJ’s Himino scores 8.2/10 on FXS Speechtracker, exactly in line with the historic average, but the emphasis on “underlying inflation almost at 2%” and rising medium- to long-term expectations marks a modest hawkish tilt. Strong AL-driven capex and exports, rapidly expanding bank lending, and low real rates are framed as reasons why postponing policy changes could heighten upside price risks, signaling growing discomfort with prolonged ultra-accommodation.
The warning that delaying action could “damage the economy” and the stress on achieving stable prices via “suitable monetary policy” reinforce the case for a gradual normalization bias. For FX, the combination of elevated upside price risks and a more assertive tone on future policy adjustments should help keep the Yen supported, especially if incoming data confirm that underlying inflation is aligning with the Bank of Japan’s target.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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