It has been one year since the Bank of Japan (BoJ) abandoned negative interest rate policy. Although the BoJ notes that the underlying rate of inflation is still below 2%, some indicators are increasingly pointing to momentum towards achieving the price stability target.
Market seems to imply the minimal level of 1% for the neutral interest rate, which could be the final destination of the recent interest rate hikes. But as interest rates continue to rise, there is speculation that the neutral interest rate could increase.
Based on our economic and price forecasts, we expect that the policy interest rate hikes will continue at intervals of around six months in 2025, with the aim of reaching 1% by the end of the year. This level is seen as the lower bound for the neutral interest rate. However, we need to keep an eye on the rising uncertainty in domestic and international politics and policies.
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Written by Yuko Iizuka, Economist, Asset Management One Co., Ltd