BOJ lifts neutral rate estimate to 1.1-2.5%
The Bank of Japan has revised its estimate of the so-called neutral interest rate, a key concept in monetary policy management, to 1.1% to 2.5% in nominal terms for the final quarter of 2025, compared with the previous range of 1.0% to 2.5%.
The central bank raised its policy interest rate to 0.75% in December last year. According to the new estimate, released on Friday, an additional 0.25-percentage-point hike would still not bring the policy rate above the neutral rate, which neither stimulates nor cools the economy.
Meanwhile, the neutral rate in real terms, or the natural interest rate, was revised to a range of minus 0.9% to plus 0.5% from minus 1.0% to plus 0.5%.
The BOJ said that the estimated neutral rate is rising moderately, reflecting a recovery in Japan's potential growth, which declined sharply amid the COVID-19 pandemic.
However, the central bank emphasised the need to assess the neutral rate as a considerable range, given the difficulty of estimating it.
