By Makiko Yamazaki
TOKYO (Reuters) – Bank of Japan Deputy Governor Ryozo Himino on Wednesday reiterated the central bank’s stance that it would continue to raise interest rates if inflation stayed on course, while also closely monitoring financial market conditions.
His comments echo those from Governor Kazuo Ueda last week, who suggested that recent market volatility would not derail its long-term rate hike plans.
The central bank would, however, need to monitor financial markets with the “utmost vigilance” as they remain unstable, and examine their impact on its economic and price outlook, Himino said in the text of a speech posted on the BOJ’s website.
The BOJ’s basic stance is to adjust monetary easing if it becomes confident that economic activity and prices can meet projections, he said in the speech in the central Japanese city of Kofu.
The BOJ surprised markets in July by raising interest rates to a 15-year high and signalling its readiness to hike borrowing costs further on growing prospects that inflation would durably hit its 2% target.
The BOJ’s hawkish tone led the battered yen to soar and Tokyo stocks to plunge in their biggest single-day rout since 1987’s Black Monday sell-off though markets have since stabilised.
Ueda was summoned in parliament last week to explain the July decision. Speaking to lawmakers, he reaffirmed his resolve to raise interest rates if inflation stayed on course to sustainably hit the BOJ’s 2% target.
A poll by Reuters showed a majority of economists expect the BOJ to hike rates again this year, but more see the chance of it happening in December rather than October.
Himino in Wednesday’s speech stressed that even with the yen’s recent rebound, a gap between current yen rates and the rates assumed in the business plans of Japanese exporter companies is not wide.
Stock price volatility “need not affect business sentiment too much” as Japanese firms have transformed themselves and formed competitive edges, he added.
He said the BOJ expects to see “the long-awaited balanced state” starting around next fiscal year, where inflation is consistent with target and economic growth slightly above cruising speed.
