Bank of Japan Deputy Governor Ryozo Himino warned that delaying necessary interest rate increases could intensify inflation risks, arguing that underlying inflation is already “quite close to 2 per cent” while financial conditions remain accommodative. Speaking in parliament, Himino said rising medium- and long-term inflation expectations suggest underlying price pressures will converge toward the BoJ’s target. Higher fuel and raw material costs are adding to inflation, while strong global AI demand is supporting exports and capital expenditure. He cautioned that delaying necessary adjustments to monetary support could ultimately “hurt the economy in the long run.”
Himino also stressed that “even after last month’s rate hike, financial conditions remain accommodative,” pointing to low real borrowing costs and strong bank lending. His comments reinforce expectations for further policy normalization, although economists overwhelmingly favor December rather than October for the next move. A Reuters poll conducted October 13–19 showed 54 of 78 economists, or nearly 70%, expecting the policy rate to reach 1.50% this quarter. Among respondents specifying a month, approximately 80% selected December, while just 2% expected a hike at the October 30 meeting. The preference for waiting reflects expectations that the BoJ will assess the effects of its June and September increases before tightening again.
Expectations for the eventual rate peak are also shifting higher. In the Reuters survey, the share of economists anticipating a terminal rate of at least 2.00% increased from 40% in September to 51% in October, although views remain divided over how far tightening should proceed. Political uncertainty presents another complication after two board members appointed under Prime Minister Sanae Takaichi opposed September’s increase to 1.25%. Further dissent could undermine confidence in the BoJ’s ability to normalize policy at the anticipated pace, potentially weighing on Yen. For now, Himino’s warning strengthens the case for continued tightening without necessarily challenging the emerging consensus for a December move.
Key Takeaways
- BoJ’s Himino warns against delaying further tightening: Deputy Governor Ryozo Himino said underlying inflation is “quite close to 2 per cent” and warned that postponing necessary monetary policy adjustments could allow inflation risks to materialize, potentially damaging the economy over the longer term.
- Financial conditions remain accommodative despite September’s hike: Himino noted that real borrowing costs remain low and bank lending continues to grow strongly, even after the BoJ raised its policy rate to 1.25%. His assessment reinforces the case for continued policy normalization.
- Energy costs and AI demand add to inflation pressures: Higher fuel and raw material costs are pushing up prices, while strong global AI demand is supporting Japanese exports and capital expenditure. Meanwhile, rising medium- and long-term inflation expectations suggest underlying price pressures could become more firmly established around the BoJ’s target.
- December emerges as the preferred timing for another hike: A Reuters poll conducted October 13–19 found 54 of 78 economists, or nearly 70%, expecting the policy rate to reach 1.50% this quarter. Among those specifying a month, approximately 80% favored December, while only 2% selected October. Economists broadly anticipate further tightening but favor allowing more time to assess previous increases.
- Expectations for the eventual rate peak are shifting higher: The share of economists anticipating a terminal policy rate of at least 2.00% rose from 36% in August to 40% in September and 51% in October. However, views remain divided, with nearly half of respondents to a separate question identifying 1.75% as the likely endpoint.
- Political dissent could complicate tightening and weigh on Yen: Two board members appointed under Prime Minister Sanae Takaichi opposed September’s rate hike. In the Reuters poll, 23 of 32 respondents believed further dissent during future increases could undermine Yen by raising concerns about the BoJ’s ability to maintain the expected tightening pace.
- October pause remains consistent with a tightening bias: Himino’s warning strengthens the case for further normalization without requiring an immediate move. The October 30 meeting is widely expected to leave rates unchanged, while December remains the favored window for the next increase.
