BOJ’s Himino says Mideast developments will factor into rate decision
By Makiko Yamazaki
TOKYO, May 26 (Reuters) – Bank of Japan Deputy Governor Ryozo Himino said that the central bank will evaluate the timing and pace of interest rate hikes by taking into account the effects of the conflict in the Middle East, which could cause major changes in economic and price forecasts.
He also said the central bank should raise interest rates “at an appropriate pace” to maintain confidence that the market is acting in the right way to control inflation.
Himino said on Tuesday that the BOJ will continue to raise interest rates on the view that the economy will continue to grow moderately as real borrowing costs remain at very low levels.
“But our basic projection may change sharply depending on developments in the Middle East,” he said in his address to parliament.
“The timing and pace of such adjustments will be carefully considered by analyzing how developments in the Middle East affect Japan’s economy and prices, and by assessing the likelihood of our baseline scenario occurring, as well as associated risks,” he added.
These comments follow recent hawkish comments from BOJ policymakers that have led markets to price the likelihood of a rate hike at roughly 80% at the next policy meeting on June 15-16.
On the recent increases in Japanese government bond (JGB) yields, Himino said they were likely part of global yield increases driven by market concern that rising fuel costs resulting from the Middle East conflict would accelerate inflation around the world.
“It is important to maintain market confidence that inflation will be properly controlled by adjusting the degree of monetary expansion at an appropriate pace in line with forward-looking economic, price and financial conditions,” Himino said. he said.
Japan’s benchmark 10-year bond yield rose last week to 2.8%, a level last seen in October 1996, amid concerns about rising global inflation and Japan’s fiscal expansion.
The BOJ ended its massive, decade-long stimulus program in 2024 and raised interest rates several times, including in December, because of its view that Japan is on the verge of permanently reaching its 2% inflation target.
Conflict in the Middle East has complicated the BOJ’s task; because high energy costs increase inflation while also squeezing an economy that is heavily dependent on oil imports.
The BOJ kept interest rates steady at its previous meeting in April, but three of its nine-member board proposed a hike in a sign of policymakers’ growing concerns about inflationary pressures from the Middle East conflict. Himino voted to keep rates constant.
The central bank also sharply revised its price forecasts and stressed caution against the risk of overshooting inflation.
(Reporting by Makiko Yamazaki; additional reporting by Leika Kihara; Editing by Sonali Paul, Shri Navaratnam and Sam Holmes)
