The Bank of Japan's interest rate hike signal was released again: future interest rates may exceed 0.75%

The Zhitong Finance App learned that according to people familiar with the matter, Bank of Japan officials believe that interest rates are likely to rise above 0.75% before the end of this round of interest rate hikes. This is an indication that there may be more interest rate hikes after the generally anticipated rate hikes next week.

According to people familiar with the matter, these officials believe that even if borrowing costs are raised to 0.75%, the Bank of Japan will not reach the so-called “neutral interest rate.” They said that some officials already believe 1% is still below the neutral interest rate.

Neutral interest rates refer to a level where central bank policy is considered neither restrictive nor stimulating. It is usually the ultimate goal of any policy cycle adjustment.

People familiar with the matter said that even if Bank of Japan officials update their estimates of neutral interest rates based on the latest data, they currently don't think this range will be drastically narrowed. The narrowing of the range usually indicates that central banks are approaching neutral interest rates.

Earlier this month, Governor Ueda Kazuo expressed his views on neutral interest rates, fueling speculation in the market. He said that the Bank of Japan hopes to release its latest estimates when the neutral interest rate range is narrowed. However, he cautioned that this is a concept that must be viewed on a fairly broad scale.

All 50 BOJ observers surveyed expect the bank to raise its benchmark interest rate to 0.75% next Friday. Many of them said that the key focus of this meeting is whether the Bank of Japan will provide a new analysis of neutral interest rates, as they are looking for clues about future interest rate hikes.

The survey estimates the final interest rate for this rate hike cycle at 1.25%, which means that before the Bank of Japan stops raising interest rates, there will be two rate hikes in addition to next week's action.

The Bank of Japan currently believes that the nominal range of neutral interest rates is between 1% and 2.5%.

People familiar with the matter said that Bank of Japan officials even think that the upper and lower limits of this range may be erroneous. Therefore, they added, the Bank of Japan will continue to evaluate the impact of each rate hike before determining the ideal level of policy interest rates.

Although it is expected that the Bank of Japan will continue to say that conditions are still relaxed, people familiar with the matter said that officials will pay close attention to the loan situation and the bank's lending position to determine how relaxed the current interest rates are.