Deputy Governor of the Bank of Japan sends a clear signal: will continue to push forward with interest rate hikes.

The Deputy Governor of the Bank of Japan, Naramitsu Hikimiya, clearly stated on Tuesday that continuing to raise interest rates is an appropriate policy choice based on the improvement in the economy and prices. He emphasized that despite the Bank of Japan having raised interest rates three times, real interest rates in Japan are still significantly low due to persistent inflation, leaving room for the normalization of monetary policy. Hikimiya pointed out that policymakers need to continuously balance various risks: "Risk and uncertainty are always key concerns for policymakers, as they need to guard against economic downturn pressures while also being vigilant of the upward risk of unexpected price increases." He stated that the Bank of Japan will maintain policy flexibility, with the pace of rate hikes continuing if the economic outlook meets baseline expectations. However, if there are deviations from the baseline, timely measures must be taken to control potential losses. The current baseline scenario in Japan faces multiple challenges. Hikimiya mentioned that the global economic slowdown and changes in trade policies could put pressure on business profits, with the risk of unexpected effects from trade policy needing careful attention. Despite financial market sentiment returning to pre-April turbulence levels, the Bank of Japan still emphasizes the need to closely monitor market dynamics to ensure financial stability. In terms of policy tool selection, Hikimiya clearly favors achieving monetary easing or tightening through adjusting short-term policy rates rather than relying on adjustments to the scale of Japanese government bond purchases. To restore the healthy functioning of the government bond market, it is necessary to reduce the level of Japanese government bond purchases by the Bank of Japan. Plans to reduce Japanese government bond purchases by the Bank of Japan should be based on the principle of market-determined long-term interest rates, providing predictability while retaining enough flexibility to support market stability. As the Bank of Japan gradually progresses with quantitative easing, it may need to start exploring monthly purchase amounts of Japanese bonds in line with appropriate reserve levels. This stance further clarifies the core path of the central bank's future policy operations. As of the time of writing, the market reacted to the signals from the Bank of Japan, with the USD/JPY exchange rate rising by 0.35% to 147.68, indicating that the pressure on the yen is still ongoing.