TLDR:
- BOJ likely to raise rates to 0.75% at December 18-19 policy meeting.
- Future hikes will depend on how past moves affect lending and corporate financing.
- Neutral rate estimate will guide policy but won’t dictate timing of hikes.
- Real borrowing costs in Japan remain deeply negative, justifying further increases.
BOJ to pledge more rate hikes next week as policymakers prepare for another shift that markets have been tracking closely.
The central bank is expected to keep a firm message that more tightening steps remain possible, though any further adjustment will depend on how the economy absorbs the December move.
With markets fully pricing in a potential rise to 0.75%, attention has moved toward how far the Bank of Japan can lift rates before approaching what it views as a neutral zone.
According to reuters, Officials have indicated that while internal estimates of the neutral level may be updated, the benchmark will not serve as the main reference for future guidance.
Instead, the BOJ plans to watch the real-time effects of previous hikes on credit activity, corporate financing, and broader economic conditions before committing to later steps.
BOJ’s Data-Dependent Strategy Takes Center Stage
The BOJ to pledge more rate hikes message comes as real borrowing costs remain deeply negative. Inflation has stayed above the 2% target for more than three years, giving the central bank room to adjust policy in stages.
One source familiar with internal discussions said, “Japan’s real interest rates are very low, allowing the BOJ to continue raising rates in several stages.” Two other sources echoed the same assessment.
Officials intend to stress that future decisions will follow a step-by-step path based on economic reactions. BOJ board member Asahi Noguchi recently warned against leaning too heavily on neutral rate projections, noting in a speech that it was “almost impossible” to determine the exact level.
He added that policymakers must “set a certain benchmark as the range where the neutral interest rate is thought to lie … and raise rates incrementally over time while monitoring the impact.”
Former BOJ chief economist Seisaku Kameda also addressed the internal discussions.
He said the bank’s staff will update neutral rate projections but added that the BOJ “won’t be able to produce any pinpoint projections.” He also stated that even after a rise to 0.75%, “monetary conditions will remain accommodative.”
Market Reaction and Outlook Ahead
Market attention intensified after traders began responding to reports suggesting more tightening could extend into 2026
In a post that circulated widely in crypto and macro circles, BullTheoryio wrote that internal sources indicate the BOJ is preparing for more tightening next year, adding that the news helped drive the sharp market downturn seen today.
The BOJ is expected to address speculation that nearing the lower end of the neutral range signals an end to tightening. Sources familiar with discussions said the central bank will explain that neutral estimates are reference points rather than triggers for policy changes.
Policymakers will instead focus on bank lending trends, financing behavior, and broader economic activity before deciding on additional moves.
Even if the policy rate reaches 0.75%, Japan would remain far below levels seen in other major economies.
The BOJ plans to continue evaluating the economic effect of each tightening step, with the neutral rate serving as background context rather than the central message at next week’s meeting.
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Source: https://blockonomi.com/boj-to-pledge-more-rate-hikes-as-japan-eyes-gradual-policy-tightening/
