Global Market: BOJ's Himino says Japan inflation near 2% target, signals further rate hikes

Bank of Japan (BOJ) Deputy Governor Ryozo Himino said on Wednesday that Japan's underlying inflation was approaching the central bank's 2% target and financial conditions remained accommodative, reinforcing expectations that the central bank could continue raising interest rates.

Underlying inflation was quite close to the BOJ's price stability target and was likely to converge towards levels consistent with the goal as medium- and long-term inflation expectations continued to rise, Himino told parliament, according to Reuters.

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Rising fuel and raw material costs were pushing up prices, while strong global demand for artificial intelligence was adding to inflationary pressures by supporting exports and capital expenditure, he said.

Himino noted that financial conditions remained loose even after the BOJ's rate hike last month, pointing to low real borrowing costs and continued strong growth in bank lending.

He warned that delaying necessary adjustments to monetary support could allow inflationary risks to materialise and ultimately damage the economy over the longer term. His comments underscored the case for further interest rate increases as the central bank assesses the sustainability of price pressures and the strength of economic activity.

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The BOJ has been gradually moving away from its long-standing ultra-loose monetary policy as inflation becomes more firmly established. Himino's remarks suggest policymakers remain alert to the risk that persistent price pressures could require additional tightening, even as they weigh the impact of higher borrowing costs on households and businesses.

The outlook for monetary policy will depend on whether wage growth and domestic demand continue to support price increases alongside higher import costs. Stronger business investment linked to artificial intelligence could also sustain economic activity and reinforce inflationary pressures, making it important for the BOJ to assess whether price growth is becoming more broad-based rather than being driven primarily by external cost factors.

Any further rate increases would mark another step in Japan's gradual policy normalisation after years of exceptionally low borrowing costs. The central bank faces the challenge of containing inflation without undermining economic growth, with policymakers likely to monitor price expectations, lending trends and corporate investment before deciding on the pace of future tightening.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)