BOJ's Himino Warns Delay Risks Inflation Overshoot, Strengthening Hike Case

Bank of Japan Deputy Governor Ryozo Himino strengthened the case for further rate increases on Monday, warning that delaying policy normalization could let inflation overshoot the 2% target. "Delaying the necessary adjustment in the degree of monetary accommodation could allow underlying inflation to rise above the 2% target, which could weigh on economic activity later on," Himino said in parliament. His comments signal a central bank that now sees the risk of acting too late as outweighing the risk of tightening too soon, a shift from the more cautious tone earlier this year.

The remarks come days after the BOJ raised its policy rate to 1.00%, the highest since 2008, and upgraded its inflation assessment. Policymakers now view elevated energy costs from the Middle East conflict as a persistent pressure on consumer prices, the BOJ's latest quarterly outlook showed. That assessment has hardened the case for further tightening, analysts said.

Prime Minister Sanae Takaichi offered no resistance to the tightening path. The government expects the BOJ to "conduct appropriate monetary policy" while cooperating to hit the 2% inflation target sustainably, she said. Local media interpreted the remarks as an endorsement of last week's hike.

Former BOJ board member Makoto Sakurai amplified the hawkish message. The central bank could raise rates twice more by March 2026 as inflation risks continue to build, Sakurai said in a Friday interview. September remains the most likely window for the next increase, he said, aligning with the view of several economists who now pencil in a hike at the September meeting.

Sakurai's timeline implies two rate increases within the next seven months, a faster pace than markets had discounted earlier this year. If the BOJ follows through, the policy rate would reach 1.50% by spring 2026, widening the positive carry on yen-denominated assets.

The hawkish commentary has already fed into yen demand. The dollar-yen pair slipped after Himino's remarks, extending its decline from the 151 area earlier this month. The pair now tests support near 145, a level that held in March. A break below that would open a move toward 142, several traders said, though intervention risks remain. For a broader view of how the yen fits into the forex landscape, see the forex market analysis section.

The BOJ's next policy decision is due Sept. 19, when the board will also release updated growth and inflation forecasts. Those projections will likely show inflation staying above 2% through early 2026, several economists said, reinforcing the case for another hike.