BOJ's Himino backs further rate increases as inflation nears target

Bank of Japan Deputy Governor Ryozo Himino argued for further interest rate increases on October 21, telling parliament that underlying inflation was approaching the bank's 2% goal while financing conditions remained supportive.

Himino said rising inflation expectations over the medium and long term pointed to underlying price growth settling at a level consistent with the target. He warned that postponing necessary reductions in monetary support could allow inflation risks to materialize and damage the economy over time.

The BOJ's latest increase brought its benchmark rate to 1.25%, the highest in 31 years. Himino said real borrowing costs remained low and bank lending was growing strongly despite that move. Alongside higher fuel and raw material costs, he identified strong global demand for artificial intelligence as a source of price pressure through increased exports and capital spending.

The central bank is expected to leave rates unchanged when its policy meeting concludes on October 30. It may nevertheless lift its inflation forecast for the next fiscal year while keeping attention on growing price risks, according to sources cited in a media report.

Some analysts have warned that Prime Minister Sanae Takaichi's proposed tax cuts and spending could complicate the BOJ's inflation efforts by stimulating demand. At the same parliamentary session, Finance Minister Satsuki Katayama acknowledged that tax reductions generally increase inflation through stronger demand, but said the government's fiscal policy would expand supply capacity without accelerating price growth.