BOJ Likely to Continue Rate Hikes: Deputy Gov.

Tokyo, March 2 (Jiji Press)–The Bank of Japan is expected to continue raising its policy rate even if the country’s inflation rate temporarily falls below the central bank’s 2 pct target, BOJ Deputy Governor Ryozo Himino suggested Monday. The country’s underlying inflation, excluding temporary factors, is getting closer to 2 pct, he told a press conference in the western Japan city of Wakayama. “There is a considerable possibility that a phase of reducing the degree of easing will come,” he added. On the possible impact of the U.S.-Israeli attacks on Iran, Himino said that “it’s difficult to predict future developments.” The BOJ will continue to monitor the situation while closely communicating with the Japanese government, he added. Although financial markets have become unstable due to the intensifying situation in the Middle East, Himino said it does not mean that the BOJ will refrain from changing its monetary policy when there is volatility. In a speech earlier in the day, he said that the country’s inflation rate could not yet be said to have reached the BOJ’s 2 pct target with certainty. The BOJ will move toward the so-called neutral interest rate, which neither stimulates nor cools the economy, in the future when the inflation rate stabilizes at around 2 pct, he added. “While one might broadly assess that it is already close to 2 pct, I feel that asserting that the rate has reached 2 pct for certain may still be premature,” Himino said of the country’s underlying inflation in the speech. He said that the BOJ’s interest rate hikes, including the most recent increase to 0.75 pct last December, have had a limited impact for now, and that “financial conditions are still accommodative.” It is difficult to say for certain whether the December increase was premature, overdue or perfectly timed, and when the next rate hike should come, Himino said. “Reacting to every fluctuation in the market could lead to the bank being second-guessed by speculators,” he said on the BOJ’s monetary policy and its impact on markets. “Rather, the bank should make it a priority to gain the confidence of market participants that it is duly conducting monetary policy in line with developments in economic activity and price developments,” he said. END [Copyright The Jiji Press, Ltd.]