News
Bank Of Japan · Inflation · Interest Rates · Monetary Policy
The Bank of Japan (BOJ) announced its natural interest rate is gradually rising, indicating further monetary tightening is supported, with new estimates placing the natural rate between -0.9% and +0.5% as of Q3 2025, suggesting a neutral rate of 1.1% to 2.5% assuming a 2% inflation target.
The BOJ's updated estimates, which previously ranged from 1.0% to 2.5% for the neutral rate, arrive amid high expectations for the central bank's next interest-rate hike, driven by inflationary pressures from the Middle East conflict. While the BOJ kept its policy rate at a three-decade high of 0.75% at its last meeting, it noted that underlying components of the natural rate have been increasing due to Japan's improved post-pandemic growth potential and a smoother wage-price cycle.
Additional data this week, including 15 consecutive quarters of a positive output gap and underlying consumer inflation at 2.2% in February, reinforce the structural shift towards resilient supply-demand balance and persistent inflationary pressures. Daiwa Securities economist Kenji Yamamoto stated these findings provide a stronger foundation for an April rate hike, even if inflation temporarily slows, as the underlying price trend remains intact.
BOJ Confirms Rising Natural Rate, Supports Hikes(current)
