BOJ Deputy Chief Refrains From Signaling Rate Hike in March

Ryozo Himino Photographer: Toru Hanai/Bloomberg Photo by Toru Hanai /Bloomberg

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(Bloomberg) — Bank of Japan Deputy Governor Ryozo Himino refrained from dropping any clear hints pointing to an imminent interest rate increase, reinforcing financial market expectations that authorities will stand pat this month after a conflict erupted in the Middle East over the weekend.

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“We will closely monitor the situation” in the Middle East, Himino said Monday at a press conference following his speech to local business leaders in Wakayama, western Japan. “Our response will heavily depend on developments from here, so I want to refrain from guessing what we’ll do by making assumptions.”

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Himino was speaking after the outlook for the economy became murkier as a result of the US-Israeli strikes on Iran. His remarks indicate there is little chance of a rate hike when the BOJ’s board sets policy on March 19. The comments stand in contrast to those Himino made in January 2025, when he pointed out that the board would discuss raising the benchmark rate at its coming meeting, a gathering where it increased borrowing costs.

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Himino’s decision to refrain from sending any clear signals was consistent with the expectations of market participants. Pricing in the overnight index swaps market indicates the likelihood of a move this month slipped to a mere 4% on Monday that the BOJ will lift its policy rate from 0.75% this month. The math changes starkly for April. Pricing shows a roughly 62% chance of a hike by that meeting.

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Speaking at the press conference, Himino reiterated that it’s hard to predict how much time the central bank will need in order to discern the impact of the conflict on Japan’s economy, a sign that he wants to keep his options open as the bank continues to maintain a rate hike posture.

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Recent data “would imply that the impacts of recent rate hikes remain limited for now, and that financial conditions are still accommodative,” Himino said in the speech, hinting that there remains room for borrowing costs to rise.

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The deputy chief also said that underlying inflation is rising steadily and cited the BOJ’s long-held stance that it will continue to raise the rate if its economic outlook is realized.

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The yen weakened against the dollar and Japanese stocks dropped Monday in an initial reaction to the war in the Middle East, as oil prices jumped. With Japan importing nearly all of its oil, authorities will be trying to determine the implications of the developments.

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Consumer inflation could jump by as much as 2 percentage points above the no-shock path — putting the pace at upwards of 4% in the BOJ’s outlook, Taro Kimura, an economist at Bloomberg Economics, wrote on Monday. A shock of that degree could prompt the BOJ to bring forward the next rate hike to as early as March, he said.

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Before the war in Iran started, Japan’s key inflation gauge was expected to slow below BOJ’s 2% target in February data due March 24, in what would be the first dip below that threshold since 2022. It’s unclear if a spike in energy prices might prevent that from happening.