IMF estimates Japan’s neutral interest rate to be in the range of 1-2%.

IMF on Japan and the BoJ

• The Bank of Japan is likely to raise interest rates again this year and could see them reach levels deemed neutral to the economy by the end of 2027.
• The IMF estimates Japan’s neutral interest rate to be in the range of 1-2%.
• Japan’s economy is expected to expand by 1.1% this year, supported by a continued recovery in wage growth that is bolstering domestic demand.
• Further rate hikes by the Bank of Japan should be gradual and flexible to ensure a sustained pickup in domestic demand.
• Risks to Japan’s economic growth are skewed to the downside, as heightened uncertainty and geopolitical fragmentation weigh on global growth.
• Rises in foreign market volatility could affect domestic liquidity conditions in Japan, potentially triggering spillover effects.
• As interest rates rise, the cost of servicing Japan’s large public debt is expected to double by 2030.
• The IMF welcomes Japan’s continued commitment to a flexible exchange rate regime.

This article was written by Eamonn Sheridan at www.forexlive.com.