BoJ's Himinno: Financial conditions appear still accommodative

BoJ's Himinno: Financial conditions appear still accommodative

BoJ’s Himino: Financial Conditions Appear Still Accommodative

The Bank of Japan (BoJ) continues to maintain accommodative financial conditions, according to Deputy Governor Ryozo Himino, despite recent policy adjustments aimed at addressing inflationary pressures and evolving global trade dynamics. In a speech delivered in September 2025, Himino emphasized that while the BoJ has raised policy interest rates three times since 2024, real interest rates remain low due to persistent inflation, underscoring the need for cautious, data-dependent policymaking.

Japan’s exit from eight years of negative interest rates—marked by a July 2024 rate hike to 0–0.1%—reflects improved domestic economic conditions, including robust wage growth and signs of a wage-price spiral. However, Himino noted that underlying inflation, which excludes temporary factors like rice price surges, remains below the 2% target but is gradually approaching it. Headline inflation, driven by food and energy costs, currently exceeds 3%, though temporary factors are expected to recede.

Global trade uncertainties, particularly U.S. tariff policies, remain a key risk. Himino highlighted that while Japanese exporters have so far absorbed tariff impacts through pricing strategies and inventory adjustments, prolonged trade tensions could dampen economic activity and exert downward pressure on prices. A trade deal between Japan and the U.S. has eased some uncertainties, but ongoing negotiations and sector-specific tariffs continue to complicate corporate planning.

Monetary policy normalization is proceeding cautiously. The BoJ has outlined a plan to reduce monthly Japanese government bond purchases from 3 trillion yen to 2 trillion yen by spring 2027, aiming to restore market functioning while avoiding abrupt disruptions. Himino stressed that short-term interest rates, rather than large-scale asset purchases, will remain the primary tool for monetary easing or tightening.

Despite these steps, the BoJ remains vigilant. Himino acknowledged upside and downside risks to inflation and growth, advocating for flexibility to respond to evolving conditions. “Uncertainty is inherent in policymaking,” he noted, echoing insights from Federal Reserve President John Williams on the need for strategies effective across multiple scenarios.

For now, accommodative financial conditions—supported by low real interest rates and gradual policy adjustments—continue to underpin Japan’s economic resilience amid a complex global landscape.