This is the first time a policy maker has identified Bank of Japan Publicly a level that the central bank should eventually target to raise short-term borrowing costs.
The likelihood of the Japanese economy sustainably achieving the Bank of Japan’s 2 percent inflation target is improving, meaning the central bank should raise interest rates to levels considered neutral for the economy by around late 2025, Tamura said.
“The neutral interest rate in Japan is estimated at at least 1 percent,” he added.
Tamura said in a speech to businessmen in Okayama, western Japan. Japan“To achieve the Bank of Japan’s goal of sustainably curbing prices, it is necessary to raise our short-term interest rate to at least around 1 percent by the second half of the fiscal year ending in March 2026,” Reuters reported.
Tamura’s comments come on the heels of a series of comments by Bank of Japan board members calling for The bank to continue raising borrowing costs despite recent volatility in financial markets.
The Bank of Japan is set to leave interest rates unchanged. changing at its next meeting on Sept. 20, but more than half of economists surveyed by Reuters last month expect further tightening by the end of the year.
In a historic move, the Bank of Japan abandoned negative interest rates last March, and raised interest rates. Interest The short-term rate was cut to 0.25 percent in July, based on the view that the economy was making progress toward its 2 percent inflation target on a permanent basis.
Bank of Japan Governor Kazuo Ueda has indicated the bank is prepared to raise interest rates further if inflation remains at 2 percent in the coming years and is accompanied by strong wage gains, as is currently expected.
While stressing the need to raise interest rates further, Tamura said the BOJ must assess the exact impact of higher borrowing costs on the economy, given Japan’s long experience with near-zero interest rates.
But he said market bets on the pace of interest rate hikes by the Bank of Japan may be too slow to avoid inflation running above target.
“We should raise interest rates at the right time, in stages,” said the former banker, who is seen by the market as one of the most hawkish members of the Bank of Japan’s nine-member board.
Tamura also said he was “worried about the risk of rising inflation,” as growing labor shortages push companies to raise wages and pass on higher costs through price increases.
Reached Inflation Japan’s core inflation was 2.7 percent in July and has been at or above the 2 percent target for 28 consecutive months.
The neutral interest rate is the theoretical level of interest rate that neither stimulates nor depresses the economy, that is, it keeps the economy in equilibrium. In other words, it is the rate that leads to neither inflation nor recession.
