BoJ's Himino: Will watch the certainty of outlook and risks for rate hike

Key quotes

No intention to signal timing for unloading BoJ's ETF, REIT holdings.

Will make rate decision looking not just at whether likelihood of underlying inflation achieving 2% heightening, but upside and downside risks to our baseline scenario.

If it becomes clear US Tariff impact on Japan's economy does not materialise, that would work in favour of raising rates.

Hard to say exactly when the BoJ can judge impact of US tariffs on Japan’s economy would be limited.

Want to pay close attention to how US tariffs affect the US economy and Japanese corporate profits.

In gauging impact of US tariffs on Japan corporate profits, i want to look not just at numerical data but mechanism in which the impact could spread.

There are both upside, downside risks to economy, prices.

If economy, prices move in line with forecast, BoJ expected to raise rates gradually.

As for timing of rate hike, all i can say is that we want to ensure it is not premature, not too late.

Monetary policy works more directly against demand shocks than supply shocks.

Dealing with supply shocks could be harder but that does not mean we won't do anything.

No comment on whether recent JGB yield moves properly reflect market expectations of future BoJ rate hikes.

Market reaction

At the time of press, the USD/JPY pair was up 0.47% on the day at 147.88.

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The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

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One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

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Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

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