BOJ's Himino cautions on upside inflation risks as Japan nears 2% goal

• Underlying price growth is now very near the central bank's 2% goal.
• He sees underlying inflation aligning with the BOJ's target.
• Inflation expectations over the medium and long term keep rising.
• The overall financial environment is still accommodative.
• Real interest rates are still sitting at low levels.
• Postponing policy shifts could let price risks take hold and damage the economy.
• There is considerable upside risk to prices.

For BOJ deputy governor Ryozo Himino, the comments listed above tread familiar ground for the central bank. They mostly add weight to the story that Japan is edging closer to the inflation goal it has chased for years, and that the BOJ must now guard against the economy running too strongly.

The biggest standout in his remarks is likely the caution over postponing policy changes. Still, he stops short of signalling that another rate increase is coming soon. Markets reflect that too, in their pricing.

At the moment, market participants have almost completely priced out any action at the October gathering, while assigning about a 74% probability to a further hike in December. The contrast is telling, particularly next to Himino's caution that waiting too long on policy could let inflation risks emerge and eventually damage the economy.

That is not to suggest the central bank's officials are insincere in what they say. Himino's comments, as I read them, are not necessarily advocating action at the October meeting. Instead, they strengthen the case that the BOJ cannot afford to remain passive for long. Even so, they do not amount to an outright confirmation of a move in December either.

Either way, the message for the yen is that additional BOJ tightening is still very much on the table. October may look like a settled question to traders, while December is another matter.