Bank of Japan policymaker Himino said he would not comment on market expectations for the next rate hike, adding that the BOJ will assess the likelihood of its economic scenario and the associated risks when weighing its next steps. As one of the nine members of the BOJ's rate-setting Policy Board, Himino holds a vote on policy decisions, and his public remarks are closely watched for hints of how the panel's thinking is evolving between meetings.

That assessment will take into consideration the Middle East conflict, AI demand, and the impact of foreign exchange movements — factors that will help determine the pace and timing of future rate hikes, he said. The reference to AI demand shows how technology-led investment has entered the list of factors shaping the policy debate alongside geopolitics and currency moves.

Himino expressed confidence that the BOJ can stabilise underlying inflation at 2% with appropriate policy moves, and said the desirable pace and timing of rate hikes will be debated at each meeting. The remarks come as the central bank continues the policy normalisation it began when it ended eight years of negative rates in March 2024, leaving the calibration of further hikes a recurring subject of debate among policymakers.

On his own outlook, Himino said his personal view on the economy and prices has not changed much since the July meeting, although he noted that the likelihood of the baseline scenario materialising may have risen somewhat since July.

He agreed with the proposition that the BOJ may step up rate hikes if financial conditions are too accommodative, but cautioned that a rate hike decision cannot be made solely on the degree of financial accommodation.

The remarks left the BOJ short of explicit guidance on its next steps. As things stand, traders are pricing in roughly 66% odds of a rate hike next month, and a full 25 basis-point rate hike is already priced in by the October meeting — a backdrop for policymakers to consider.

Separately, there have been suggestions that the joint US-Japan intervention to bolster the defense of the yen involved a silent agreement for the BOJ to play its part as well. Currency intervention in Japan is decided by the Ministry of Finance and executed by the BOJ as its agent, which is why any suggestion of a central bank role in an exchange-rate understanding draws particular attention.

With USD/JPY moving back above the 159.00 level this week, the pressure is back on Japanese authorities as they contend with the yen's continued weakness. How the factors Himino listed — the Middle East conflict, AI demand and exchange-rate movements — develop ahead of the coming policy meetings will help shape the debate over the pace and timing of further hikes.

Source: Investinglive