BOJ Deputy Governor Himino Says Will Balance Economic Data and Inflation Risks in Rate Decisions

Bank of Japan Deputy Governor Ryozo Himino said Thursday that future interest rate decisions will be a delicate balancing act: the central bank must take time to fully assess economic and financial market conditions while also acting in a timely manner to avoid falling behind the curve on inflation. The remarks outline the fine balance the BOJ faces as it exits its ultra-loose monetary policy.

**Inflation Risks Rising, Policy Balance Shifts Delicately**

Recent comments from senior BOJ officials have focused on inflation risks. According to reports, Governor Kazuo Ueda has previously noted that crude oil price increases are transmitting to broad goods prices faster than before, which could push inflation above target levels. Deputy Governor Himino further emphasized the need to avoid "falling behind the inflation curve," suggesting that the risk of accelerating price gains is becoming a key focus for policymakers. Under the BOJ's baseline forecast, core CPI inflation is expected to gradually reach levels consistent with the price target between fiscal 2026 second half and fiscal 2027, but the central bank has also identified risks that inflation could rise above target.

**Moderate Economic Recovery Supports Policy Normalization**

Despite concerns over slowing global demand and weakness in certain sectors, the BOJ assesses the economy remains on a "moderate recovery" track, with the risk of a significant slowdown having declined compared with earlier. Currently, even after policy rate adjustments, the central bank expects accommodative financial conditions to be maintained, with real interest rates remaining negative in the short-to-medium term, continuing to firmly support economic activity. This provides conditions for the central bank to advance policy normalization, with the timing and pace of the next move depending on whether the baseline scenario of moderate synchronized gains in the economy and prices is achieved.

**Divergence in Policy Pace, Month-End Meeting as Key Window**

Notably, there is divergence within the policy board over the pace of rate hikes. At a recent meeting, board member Takata Hajime cast the sole dissenting vote, advocating for consecutive rate hikes. Reports indicate the BOJ will observe risks, including geopolitical conditions, until the final moment before the meeting to decide whether to adjust rates. The current policy rate stands at approximately 0.75%, and a rate hike would mark the first move since December last year, following several meetings in between. The central bank is adjusting the degree of monetary easing toward the stable achievement of its 2% inflation target.