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

Underlying inflation is close to the 2% target, Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Wednesday, while noting that financial conditions remain accommodative.

Selected 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. 

USD/JPY trades higher

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

Yen remains supported as BoJ’s Himino highlights mounting inflation risks

At 8.2/10, BoJ’s Himino’s FXS Speechtracker score matches the historical average exactly. Nevertheless, his focus on “underlying inflation almost at 2%” and increasing medium- to long-term inflation expectations lends his remarks a modestly hawkish slant. He presents robust AL-led capital expenditure and exports, rapid growth in bank lending and low real interest rates as grounds for concern that delaying policy changes could increase upside price risks. This points to growing unease over maintaining ultra-accommodative policy for an extended period.

A bias towards gradual normalisation is further supported by the warning that postponing action could “damage the economy”, alongside the emphasis on securing stable prices through “suitable monetary policy”. In currency markets, heightened upside price risks, coupled with a firmer tone on future policy adjustments, should underpin the Yen. That support should be particularly evident if forthcoming data confirm that underlying inflation is moving into line with the Bank of Japan’s target.