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(Bloomberg) -- Japan’s real rates clearly remain in negative territory even with last week’s interest rate hike, and the Bank of Japan will keep raising rates if its economic outlook is realized, according to Deputy Governor Ryozo Himino.
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“Given that real rates continue to be very much in the red, an easy monetary environment’s been maintained,” said Himino, in the first public speech from a board member following the BOJ’s latest rate hike.
“Looking ahead, it depends on the economy, prices and financial circumstances, but if our economic and price outlooks are realized, we’ll hike rates accordingly,” he said in a speech at a conference hosted by Hitotsubashi University in Tokyo Thursday.
The deputy governor cemented the BOJ’s message that the central bank is looking to hike rates further in the future, by also saying that it’s not normal for real rates to remain negative for a long time. His other comments largely suggested that the pace of hikes will remain gradual, as Himino emphasized that ideally, Japan should slowly move toward a world with positive rates accompanied by growth, wage hikes and improved productivity.
Ahead of this month’s rate hike, Himino played a key role in getting market participants to price in action from the BOJ, by sending an unusually clear signal that an increase was coming. As one of the central bank’s two deputy governors, his speeches will likely remain important events to follow for BOJ watchers, in order to grasp the thinking behind the BOJ’s top brass.
Reflecting on how much Japan has changed over the decades, Himino also said that it’s hard to know the economic impacts from recent hikes that have brought the policy rate back up to the level it was in 2008.
He noted for example the shift in households and businesses’ balance sheets. The percentage of Japanese companies with no debt has risen to 46% in 2021 from 25% in 1999, while household debt has only risen a modest amount considering their overall financial assets have more than doubled since 1990, Himino said.
“Given those changes, the world of nominal positive rates now in Japan may see a lot of different outcomes compared to the past,” he said.
Besides the rate hike, the BOJ also took a major step toward normalizing its balance sheet last week. It decided to end a key lending program that will shrink its balance sheet by around 10% through early 2028.