Underlying inflation close to 2% target, says BoJ’s Himino

Financial conditions remain accommodative even as underlying inflation approaches the 2% target, Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Wednesday.

What were Himino’s key remarks?

Strong AL demand driving up capex, exports. 

Underlying inflation almost at 2% target. 

Underlying inflation likely to align with Bank of Japan target. 

Medium- and long-term inflation expectations continue rising. 

Financial conditions still accommodative. 

Real interest rates stay low, bank lending expands rapidly. 

Postponing policy changes could trigger inflation risks, damage economy. 

Upside price risks elevated. 

Stable prices via suitable monetary policy would boost Japan’s sustainable growth. 

How did the market respond?

USD/JPY trades at 158.35 at the time of writing, a gain of 0.13% for the day.

Can Himino’s warning on rising inflation risks keep the Yen supported?

A modest hawkish bias emerges from BoJ’s Himino’s remarks, despite his FXS Speechtracker score of 8.2/10 matching the historical average exactly. That tilt reflects his focus on “underlying inflation almost at 2%” and increasing medium- to long-term inflation expectations. He presents robust AL-led capital expenditure and exports, brisk growth in bank lending and low real interest rates as grounds for concern that deferring policy adjustments could amplify upside price risks. The message points to mounting unease over maintaining an ultra-accommodative stance for too long.

For currency markets, elevated upside price risks, together with a firmer tone on future policy changes, should lend support to the Yen, particularly if forthcoming data confirm that underlying inflation is converging with the Bank of Japan’s target. A bias towards gradual normalisation is further supported by the warning that postponing action could “damage the economy” and the emphasis on securing price stability through “suitable monetary policy”.