BOJ Deputy Governor: More Rate Hikes Likely, But Not in a Rush

Bank of Japan (BOJ) Deputy Governor Ryozo Himino has indicated that the central bank is likely to raise interest rates further, but not in a hurry, as it seeks to achieve its 2% inflation target. In a speech to local business leaders in Yamanashi, central Japan, on Wednesday, Himino said that the BOJ would continue to assess the impact of market developments and the July rate hike, and would adjust the degree of monetary accommodation accordingly if it has growing confidence in its outlook for economic activity and prices.

Himino's comments reinforce the BOJ's message that another rate hike remains on the table, keeping upward pressure on the yen. The deputy chief's speech is likely to support many BOJ watchers' forecast that another rate increase in Japan is likely by January.

At the same time, Himino made comments that suggested a rate hike wasn't imminent in the speech and at a press conference in the afternoon. The deputy governor told reporters that the first job the BOJ must do is to watch financial markets with an "extremely high sense of urgency," as he thinks they remain unstable. Financial markets at home and abroad can of course affect the likelihood of whether the inflation outlook will be realized.

The yen weakened after Himino's remarks, trading at around 144.4 against the dollar in the mid-afternoon in Tokyo after rising as high as 143.69 in the morning.

Himino, a former top bureaucrat at the Financial Services Agency, is the last of the three top BOJ leaders scheduled to speak publicly this month. The central bank surprised markets with its hawkish signals after raising its benchmark rate on July 31, in a move that contributed to global market turmoil that sent the Nikkei 225 tumbling by the most on record.

Following the market ructions, Shinichi Uchida, the BOJ's other deputy governor and a veteran policy architect, sent a clear dovish signal on Aug. 7. Given Ueda and Himino have since then diluted the dovish tilt in their messaging, Uchida was likely tasked with calming the markets in the immediate aftermath of the rout. Losses across global equity markets have mostly been erased.

In conclusion, BOJ Deputy Governor Ryozo Himino's comments suggest that the central bank is likely to raise interest rates further, but not in a rush, as it seeks to achieve its 2% inflation target. The BOJ will continue to assess the impact of market developments and the July rate hike, and will adjust the degree of monetary accommodation accordingly if it has growing confidence in its outlook for economic activity and prices. However, Himino also emphasized the importance of watching financial markets with an "extremely high sense of urgency," as they remain unstable.