Japan’s Monetary Path: Bank of Japan Eyes Gradual Hikes, No Neutral Rate Estimate

The Bank of Japan (BOJ) is expected to maintain its pledge to continue raising interest rates at its upcoming policy meeting next week, according to sources familiar with the matter. The central bank will keep its stance flexible, with the pace of hikes dependent on how the economy reacts to each increase.

Key Highlights

Policy Continuity: BOJ is likely to reaffirm its commitment to gradual rate hikes, signaling confidence in Japan’s economic resilience.

Flexible Approach: The pace of tightening will be data-driven, adjusting to the economy’s response to each rate increase.

Neutral Rate Estimate: Sources confirmed BOJ will not release an updated estimate of the neutral rate, nor use it as a primary communication tool for rate-hike timing.

Market Context: Investors are closely watching BOJ’s moves as Japan transitions from years of ultra-loose monetary policy, with inflation stabilizing above target.

Global Impact: BOJ’s stance could influence global markets, particularly currency flows, as Japan’s monetary tightening diverges from other central banks.

This decision underscores BOJ’s cautious yet determined approach to normalizing monetary policy, balancing inflation control with economic stability.

Sources: Reuters, Nikkei Asia, Economic Times