Ueda said there is still significant uncertainty about how far the BOJ can ultimately raise interest rates, citing the difficulty of estimating Japan’s neutral rate, the level that neither stimulates nor restricts economic activity. Speaking in parliament, Ueda said the bank can currently only offer a “wide range” for the neutral rate, though it is working to narrow its estimate and will disclose findings when possible.
Because the neutral rate is not directly observable and influenced by shifting factors such as productivity, the lack of precision makes it harder to determine the appropriate endpoint for policy tightening, Ueda said. The BOJ’s current estimate places Japan’s nominal neutral rate somewhere between 1% and 2.5%, far above the short-term policy rate of 0.5%.
Ueda reiterated that monetary policy must be guided without full clarity on where the neutral rate lies, underscoring the uncertainty around the eventual peak rate.
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Huh. I gotta say, what interests me more right now is NOT how high rates will go eventually but whether we get a hike at the next meeting, which is on December 18 and19.
It occurs to me that if the BoJ estimate of neutral is in a range of 1 – 2.5% then the current rate at 0.5% is too low with inflation running around and above 3%. I reckon Ueda is telling us he is in favour of an interest rate rise from 0.5% to 0.75% to be announced on December 19.
Merry Christmas
