By Leika Kihara and Takahiko Wada
TOKYO/WAKAYAMA, March 2 (Reuters) – Bank of Japan Deputy Governor Ryozo Himino said the central bank is expected to keep raising interest rates but gave no hints on the timing of the next hike, as the Middle East conflict heightened uncertainty over the economic outlook.
Himino said the growing market volatility would not prevent the Bank of Japan (BOJ) from raising rates, arguing that it was inappropriate to automatically tie its policy decision to market developments.
Instead, he stressed the need to scrutinise various data in determining the timing for the next rate hike with underlying inflation approaching, but not yet stabilising, around the BOJ’s 2% target.
“At present, we can gradually adjust the degree of accommodation by raising rates toward levels deemed neutral to the economy,” Himino told a press conference on Monday.
“It’s too hard to pinpoint with precision” how far the BOJ’s policy rate is from neutral, Himino said, stressing the need to base future rate decisions on a comprehensive look at data available at the time.
Himino’s comments have been closely watched by markets for clues on when the BOJ will deliver the next rate hike, after he gave strong hints on a rate increase to 0.5% from 0.25% in January last year in a speech delivered a week before the move.
The BOJ ended a decade-long, massive stimulus in 2024 and raised rates in several steps including in December, on the view Japan was making steady progress in durably achieving its 2% inflation target.
With the weak yen pushing up import costs and broader inflation, markets had bet the BOJ could raise rates again to 1.0% from the current 0.75% as soon as March or April.
The weekend U.S.-Iran crisis could complicate the BOJ’s rate-hike decision by weighing on growth and pushing up prices through a spike in crude oil prices, analysts say.
Himino declined to comment on how the conflict could affect the BOJ’s policy decision, saying it was too hard to predict now the impact on Japan’s economy.
In a speech prior to the press conference, he said the impact of past rate hikes on Japan’s economy appears to be limited.
Himino also said the inflation gap, or the difference between underlying inflation and the BOJ’s 2% inflation target, was slightly negative now but was likely to approach zero in the future.
“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,” he said.
While he said it was essential to scrutinise market moves as they affect economic activity and prices, Himino warned the market response to monetary policy was “far from straightforward.”
“Reacting to every fluctuation in the market could lead to the Bank being second-guessed by speculators,” Himino said. “Rather, we should make it a priority to gain confidence of market participants that it is duly conducting monetary policy in line with developments in economic activity and prices.”
(Reporting by Leika Kihara, additional reporting by Makiko Yamazaki and Takahiko Wada; Editing by Jacqueline Wong and Shri Navaratnam)
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