BOJ’s Himino reiterates readiness to raise rates if economy on track

Bank of Japan Deputy Governor Ryozo Himino on Wednesday reiterated the central bank’s stance that it would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions.

His comments echo those from Governor Kazuo Ueda last week, who suggested that recent market volatility would not derail its long-term rate hike plans.

The central bank would, however, first need to monitor financial markets with the “utmost vigilance” as they remain unstable, Himino said in a press conference after he met business leaders in the central Japanese city of Kofu.

The BOJ will examine the impact of recent market volatility, the interest rate hike in July and the course of the US economy on its economic and price outlook, he said.

“There is no change to our stance that we would adjust monetary easing if economic activity and prices are likely to meet projections,” he said.

The BOJ surprised markets in July by raising interest rates to a 15-year high and signalling its readiness to hike borrowing costs further on growing prospects that inflation would durably hit its 2 per cent target.

The BOJ’s hawkish tone led the battered yen to soar and Tokyo stocks to plunge in their biggest single-day rout since 1987’s Black Monday sell-off though markets have since stabilised.

Ueda was summoned in parliament last week to explain the July decision. Speaking to lawmakers, he reaffirmed his resolve to raise interest rates if inflation stayed on course to sustainably hit the BOJ’s 2 per cent target.

A poll by Reuters showed a majority of economists expect the BOJ to hike rates again this year, but more see the chance of it happening in December rather than October.

Prior to the press conference, Himino in a speech to business leaders expressed confidence in the outlook for the Japanese economy.

“I believe that the baseline scenario for the future remains that growth and inflation will develop in line with the BOJ’s outlook,” he said, according to the text posted on the central bank’s website.

He pointed out that the yen’s recent rebound may alleviate the pain of rising import costs and profit squeeze many small and medium-sized firms currently face.

While the stronger yen could pressure profits at export-oriented companies, there is not a wide gap between current yen rates and the rates assumed in their business plans, he said.

Stock price volatility “need not affect business sentiment too much” as Japanese firms have transformed themselves and formed competitive edges, he added.

Private consumption, previously a weak spot of the economy, will be underpinned by wage growth and moderating inflation, although the BOJ needs to be mindful of risks that inflation will not moderate and continue to push down real wages, he said. Meanwhile Japan’s Nikkei share average closed higher on Wednesday amid a weaker yen, but earnings from AI darling Nvidia later in the day kept investors cautious.

The Nikkei ended up 0.22 per cent at 38,371.76, reversing early declines, as the yen extended its slide against the dollar over the course of the session.

That put the index close to the top of its narrow range since mid-month, which has been anchored around the psychological 38,000 mark. The broader Topix slipped 0.08 per cent.

Market expectations for Nvidia’s financial report are sky-high, and anything short of a stellar forecast from the chipmaker could jolt investor confidence in the AI-fuelled rally.

“The bar is extremely high, and depending on the result, stocks could swing wildly”, which kept Japanese investors largely sidelined, said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

Semiconductor-sector shares were mixed, with chip-testing equipment maker and Nvidia supplier Advantest rising 4.18 per cent to be the Nikkei’s biggest gainer by index points. Peer Lasertec climbed 4.19 per cent.

At the same time, chip-testing machinery giant Tokyo Electron finished slightly lower, while AI-focused startup investor SoftBank Group slumped 2.29 per cent.

The yen traded about 0.4 per cent weaker at 144.47 per dollar as of 0611 GMT, reversing course after starting the day by extending overnight gains to 143.69. On Aug. 15, it traded closer to 150 per dollar.

A stronger yen reduces the value of overseas sales, while also making stocks more expensive for overseas investors.

“Even though the yen is weakening a little now, the trend is for gradual yen appreciation, which is a weight on stocks,” Ichikawa said.

Automaker shares were mixed, with Toyota Motor rallying 3.88 per cent and Honda advancing 0.7 per cent, while Nissan slid 0.65 per cent and Mazda eased 0.16 per cent.

Agencies