Bank of Japan Deputy Gov. Ryozo Himino says he sees a risk that inflation could accelerate beyond the central bank’s 2% target, explaining to government officials the rationale for raising interest rates earlier this week.
“We are seeing the pass-through of higher costs into prices in business-to-business transactions proceed at a somewhat faster pace, and we believe this could eventually spread to broader price increases across a wide range of consumer goods and services,” Himino said in response to questions in parliament Friday. “As you pointed out, there is a risk that underlying inflation could accelerate beyond the Bank’s 2% price stability target.”
Himino was the first BOJ official to speak publicly after the bank raised its benchmark rate to the highest in 31 years on Tuesday. Himino reiterated the BOJ’s commitment to keep raising rates in response to the economy and inflation without offering any clear hints on the potential timing.
“If we are late with necessary adjustments to the degree of monetary easing, we’d be forced to conduct more rapid interest rate hikes later on,” Himino said. “This could place a significant burden on households, businesses, and the economy as a whole, including through higher mortgage rates.”
Himino was speaking as the yen approached its weakest level against the dollar since 1986. Japan’s currency was trading around ¥161.20 per dollar Friday morning in Tokyo, weaker than the level where Japanese authorities intervened in the market to support the currency in late April.
The yen’s latest slide coincided with broad dollar strength as the greenback staged its biggest two-day rally in three months on bets that the U.S. Federal Reserve will start raising interest rates in coming months.
Himino said currency movements are more likely to have an impact on inflation now than previously and therefore warrant monitoring.
“For the time being, it is particularly important to closely monitor how developments in the Middle East may affect financial and foreign exchange markets, as well as Japan’s economy and prices,” he said. “In addition, attention should be paid to the impact on Japan’s economy and prices of developments in global AI-related demand and future fluctuations in exchange rates.”
Himino also said that the Middle East conflict has raised business transaction costs tied with energy and oil-related products, which are likely to start boosting consumer inflation around the summer. A measure of input prices for Japanese firms climbed 6.3% in May on an annual basis, the most in three years.
“Even if price increases are caused by supply shocks, we need to consider policy responses if these increases spread to a wide range of goods and services and could boost the underlying inflation rate,” Himino said.
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