Bank of Japan Deputy Governor Ryozo Himino outlined on Monday that the central bank is expected to continue raising interest rates gradually as it moves toward a more neutral monetary policy stance. In a public speech, Himino emphasized that while inflationary pressures are strengthening, the BOJ cannot yet be certain that core inflation has reached its 2% objective.
Himino said the effects of past interest rate increases on Japan's economy have, to date, appeared limited. He described underlying inflation as rising steadily but warned against declaring that inflation has definitively achieved the 2% level. That uncertainty, he said, calls for a cautious approach.
"This would suggest that, while the Bank’s policy remains somewhat accommodative, it should gradually shift to a more neutral stance through moderate policy rate hikes," Himino said in the speech.
The deputy governor also discussed the inflation gap - defined as the difference between underlying inflation and the BOJ's 2% target - saying it was slightly negative at present. Himino added that the gap is likely to move toward zero over time, a development that would support the gradual tightening path he described.
Himino's remarks underscore the BOJ's approach of measured policy adjustment. He framed the situation as one where inflation is advancing toward the target but where confirmation of a sustained 2% rate remains premature. That assessment informs the central bank's stance that policy still retains some accommodative elements and that further moderate increases in policy rates are appropriate to nudge policy toward neutrality.
Observers will be watching whether upcoming data confirm the sustained rise in underlying inflation and how the limited visible impact of prior rate hikes evolves. Until there is clearer evidence that inflation has reliably reached the BOJ's target, Himino's guidance suggests the bank will favor incremental moves rather than abrupt changes in policy direction.
Summary of main points
- Deputy Governor Ryozo Himino expects a gradual shift toward a neutral stance via continued rate increases.
- Past interest rate hikes have shown limited impact on the economy so far.
- Underlying inflation is rising steadily, but it is still premature to confirm a sustained 2% rate; the inflation gap is slightly negative but expected to approach zero.