Bank of Japan signals another rate hike: future interest rates may exceed 0.75%

According to informed sources, Bank of Japan officials believe that before the end of this round of interest rate hikes, rates are likely to rise to 0.75% or above. This indicates that after the widely expected rate hike next week, there may be more hikes to come. The sources said that these officials believe that even if they raise the lending cost to 0.75%, the Bank of Japan will not reach the so-called "neutral rate". Some officials already believe that 1% is still lower than the neutral rate. The neutral rate refers to a level of central bank policy that is considered to be neither restrictive nor stimulative, and is typically the ultimate goal of any policy cycle adjustment. The sources also said that even if Bank of Japan officials update their estimate of the neutral rate based on the latest data, they do not believe that the range will narrow significantly at this point. Narrowing of the range usually indicates that the central bank is approaching the neutral rate. Earlier this month, Governor Haruhiko Kuroda's comments on the neutral rate added to market speculation. He said that the Bank of Japan hopes to announce its latest estimate when narrowing the neutral rate range. However, he warned that this is a concept that must be viewed with considerable breadth. All 50 Japan Bank watchers surveyed expect the bank to raise its benchmark interest rate to 0.75% next Friday. Many of them believe that the key focus of this meeting is whether the Bank of Japan will provide a new analysis of the neutral rate, as they are looking for clues to the future rate hike path. The survey estimates the endpoint interest rate of this rate hike cycle to be 1.25%, meaning that there will be two more hikes before the Bank of Japan stops raising rates after next week's action. The Bank of Japan currently believes the nominal range of the neutral rate is between approximately 1% and 2.5%. The sources said that Bank of Japan officials even believe that there may be errors in both the upper and lower bounds of this range. Therefore, they added that the Bank of Japan will continue to assess the impact of each rate hike and then determine the ideal policy rate level. Despite expectations that the Bank of Japan will continue to indicate that conditions remain accommodative, the sources said that officials will closely monitor lending conditions and banks' lending stance to judge how loose the current interest rates really are.