BOJ should keep raising interest rates, deputy governor Himino says

Bank of Japan Deputy Governor Ryozo Himino indicated that continued interest rate hikes are appropriate given economic improvements, despite underlying inflation remaining below the 2% target but expected to gradually accelerate. Himino emphasized ongoing global economic uncertainty, specifically the potential for U.S. tariffs to have a larger-than-anticipated impact on Japan's economy, underscoring the necessity for policymakers to continually assess risks.

Analysis

Bank of Japan (BOJ) Deputy Governor Ryozo Himino has signaled a continuation of monetary policy normalization, stating that it would be appropriate to keep raising interest rates in line with Japan's economic and price improvements. This hawkish commentary is conditional, however, as Himino acknowledged that underlying inflation remains below the central bank's 2% target, though it is expected to gradually accelerate. The policy outlook is significantly tempered by high uncertainty in the global economy, with a specific warning that the impact of U.S. tariffs on Japan's economy could be larger than anticipated. This indicates the BOJ is navigating a dual mandate: normalizing policy based on domestic recovery while remaining highly sensitive to external risks, particularly those stemming from international trade policy. The overall stance is one of measured hawkishness, contingent on data and prepared for downside shocks.

Key Decisions for Investors

• Investors should consider that the BOJ's hawkish rhetoric, signaling further rate hikes, is fundamentally supportive of the Japanese Yen (JPY) and could lead to its appreciation against currencies with more dovish central bank policies.
• The explicit warning about U.S. tariffs represents a key risk factor for Japanese equities, particularly for export-oriented companies; positions in this sector may warrant reviewing or hedging against potential trade-related volatility.
• The expectation of continued rate increases implies upward pressure on Japanese Government Bond (JGB) yields, suggesting caution for investors with long-duration JGB exposure due to the potential for price declines.
• Given the mixed signals of a tightening bias against a backdrop of significant external risks, investors should monitor incoming Japanese inflation data for confirmation of the BOJ's anticipated acceleration before fully pricing in a sustained hiking cycle.