IMF Supports Bank of Japan's Gradual Rate Hikes Towards Neutral

Nada Choueiri, the deputy director of the IMF’s Asia-Pacific Department and mission chief for Japan, has expressed support for the Bank of Japan's (BoJ) current path of monetary policy. In her statements, she highlighted the importance of adopting a gradual and flexible approach to raising interest rates, emphasizing that this strategy is vital for ensuring ongoing recovery in domestic demand.

Choueiri provided projections indicating that the BoJ's policy rate could exceed 0.5% by the end of this year. She also noted a longer-term trajectory, suggesting that the rate is expected to move towards the neutral level by the conclusion of 2027.

According to the IMF, Japan's neutral interest rate is estimated to fall within a range of 1% to 2%, with a midpoint identified at 1.5%. This benchmark serves as a guide for monetary policy adjustments in Japan.

In addition to its outlook on interest rates, the IMF maintains a positive perspective on Japan's economic performance. The organization forecasts a GDP growth rate of 1.1% for Japan in 2025, driven by advancements in wage growth and stronger consumer spending, which are expected to bolster domestic growth.

In light of these economic projections, the IMF believes that the Bank of Japan will continue its cycle of monetary tightening, but in a measured and controlled manner, aligning with the overall goal of fostering economic stability and growth.

IMF, BoJ, economy