Some members of the Bank of Japan’s board signaled that the country’s real interest rate remains very low during a meeting earlier this month where authorities raised the benchmark rate, suggesting that further increases are likely in store.
“Japan’s real policy interest rate is by far at the lowest level globally,” one of nine board members said at the two-day meeting that concluded on Dec. 19, according to a summary of the discussions released Monday. “It is appropriate for the bank to adjust the degree of monetary accommodation,” the member said, citing the impact on prices through currency movements.
The account clearly indicates that the BOJ hasn’t yet reached neutral with its policy rate. One member noted, “It can be said that there is still considerable distance to the neutral interest rate level.”
At the news conference following the Dec. 19 decision, BOJ Gov. Kazuo Ueda said it is difficult to pinpoint that level. A study by the BOJ has said the neutral rate lies somewhere in a broad range between 1% and 2.5%.
The summary suggested that some members echoed Ueda’s views on the neutral rate, noting the difficulty of identifying the level. One said the bank should interpret it with considerable latitude, while another said it should not aim for a specific level but instead remain flexible in its policy approach.
At the conclusion of the two-day gathering, the BOJ raised its policy rate to 0.75%, the highest since 1995. Markets had largely priced in the move after Ueda signaled in the run-up to the decision that conditions for dialing back the degree of monetary easing were falling into place.
AloJapan.com