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BOJ Deputy Governor Signals Further Rate Hikes as Inflation Nears 2%

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Bank of Japan Deputy Governor Ryozo Himino said the central bank should continue raising interest rates and adjust monetary accommodation as underlying inflation nears the 2% target.

In a speech on Thursday, Himino said the timing and pace of further adjustments should be guided by developments in economic activity, prices and financial conditions, adding that policymakers should also consider risks, including the Middle East conflict, rising global AI-related demand and foreign exchange movements.

Japan's economy is expected to continue growing moderately, albeit at a slower pace, supported by government measures, accommodative financial conditions and stronger global demand for artificial intelligence, he said.

Himino said CPI inflation is expected to move above 2% in the second half of fiscal 2026 as temporary downward pressures fade.

Higher semiconductor prices and the recent depreciation of the yen are also expected to add to price pressures.

The BOJ raised its policy rate to 1% in June, the highest level in 31 years, but Himino said financial conditions remain accommodative, with real interest rates still negative and bank lending growth picking up.

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