Bank of Japan (BoJ) Deputy Governor Ryozo Himino said on Wednesday that financial and capital markets remain unstable and the Japanese central bank must monitor these developments with extreme vigilance.

Key Quotes

Financial and capital markets remain unstable.

The BoJ must monitor these events with utmost vigilance.

The BoJ also intends to closely examine the impact of this market.

Events at home and abroad affect sales markets and prices, risks associated with prospects, and the degree of confidence in the prospects.

The BoJ will adjust the degree of monetary accommodation if it becomes increasingly confident that its forecasts for economic activity and prices will come true.

We will conduct monetary policy in a manner appropriate to achieving the 2% inflation target in a sustainable and stable manner, while communicating closely with market participants and other stakeholders.

Recent market volatility, including weakening stocks and strengthening yen, should be closely monitored.

The BoJ should continue its efforts to refine its approach to estimating the neutral interest rate for Japan and apply the results as a useful benchmark.

But the BoJ has no choice but to chart a path forward by examining how the economy and prices respond to its monetary policy.

Estimating a neutral interest rate would not automatically indicate the appropriate policy path for Japan, at least for now.

Our baseline scenario for fiscal years 2025 and 2026 assumes a relatively balanced situation, with inflation in line with the price stability objective and economic growth slightly above normal.

The recent appreciation of the yen could mitigate the rising import costs and falling profits that many miniature and medium-sized businesses are currently facing.

However, a stronger yen could reduce yen-denominated profits for export industries and Japanese multinationals.

Market reaction

At the time of writing, the USD/JPY pair is trading 0.13% higher on the day at 144.15.