Sources: The Bank of Japan will not disclose its latest estimate of the neutral interest rate, nor will it use it as the main communication tool for the timing of rate hikes.

Three sources familiar with the Bank of Japan's thinking revealed that the bank may maintain its commitment to continue raising interest rates next week, but will emphasize that the pace of future rate hikes will depend on the economic reaction to each hike. After Bank of Japan Governor Haruhiko Kuroda essentially announced this move in advance, the market has already largely priced in the possibility of raising rates from 0.5% to 0.75% at the December 18-19 meeting. Market attention has now shifted to how much the Bank of Japan may raise rates before reaching a neutral level that neither stimulates nor cools economic growth. The sources indicated that although the bank may update its estimates of the gap between its policy rate and the neutral level internally, it will not use this estimate as the main communication tool for future rate hike paths due to the difficulty of making accurate predictions. Instead, the sources stated that the Bank of Japan will explain that future rate hike decisions will be based on the impact of past rate hikes on bank lending, corporate financing, and other economic activities. However, the sources pointed out that with inflation exceeding the 2% target for more than three consecutive years, Japan's real borrowing costs are still deeply negative the Bank of Japan may emphasize this point next week as a basis for further rate hikes.