Bank of Japan Deputy Governor Ryozo Himino announced on Thursday that the central bank is prepared to continue raising interest rates, provided the economic and price forecasts align with their expectations. Speaking at a formal engagement, Himino emphasized the abnormality of Japan's inflation-adjusted real interest rates remaining negative for an extended period. This statement follows the Bank of Japan's decision last week to increase its policy interest rate.
The Bank of Japan recently raised its policy interest rate to 0.5% from a previous 0.25%. This move aims to foster rising wages and maintain stable inflation around the 2% mark. The decision addresses the ongoing challenge of negative real interest rates, which can arise from economic shocks or factors contributing to deflation.
Himino underscored the importance of aligning real interest rates with the bank's forecasts for economic stability. The central bank anticipates continued wage growth, which supports its strategy to maintain inflation at a stable rate. This approach is part of a broader effort to stabilize the economy and ensure that prices remain steady.
The interest rate adjustment reflects the Bank of Japan's commitment to rectifying the prolonged period of negative real interest rates. By adjusting its policy rate, the central bank aims to support both the economy and its pricing mechanisms. Negative real interest rates have been a pressing concern for Japan, as they can disrupt economic stability and hinder growth.
The central bank's decision aligns with its strategic goal of sustaining inflation at around 2%. Himino's comments suggest that further rate hikes may be on the horizon if economic conditions continue to align with forecasts. This proactive stance is crucial for addressing the factors that have historically contributed to Japan's economic challenges.
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