Naoki Tamura, a board member of the Bank of Japan (BOJ), has expressed his view that the neutral interest rate in Japan is "around 2%."

According to Kyodo News and the Nihon Keizai Shimbun (Nikkei), Tamura made the remarks regarding the neutral rate during a financial and economic meeting held in Kobe today (June 25).

Stating that this was his personal opinion, he suggested that there is still significant room for the BOJ to raise interest rates, saying, "My basic policy is to raise rates by 0.25 percentage points every few months until we reach the neutral rate level of 2%."

The neutral interest rate refers to a level that neither stimulates nor cools the economy.

The Bank of Japan ended its negative interest rate policy in March 2024 for the first time in 17 years, and in July of the same year, it raised its policy rate (benchmark interest rate) from the 0–0.1% range to "around 0.25%."

The rate was subsequently raised to "around 0.5%" in January of last year, "around 0.75%" in December of the same year, and to "around 1%" on the 16th of this month, marking the highest level in 31 years.

Tamura's view is interpreted as meaning that the BOJ's benchmark interest rate could potentially be raised four more times by 0.25 percentage points each.

Known as a hawk within the BOJ who is proactive about raising interest rates, Tamura emphasized again on this day that there is a risk of inflation rising more than expected. He stressed that the pace of interest rate hikes should be accelerated, taking into account the potential for a sharp rise in crude oil prices due to the situation in the Middle East.

He pointed out that the expected inflation rates of companies and households have "already reached a level that is generally consistent with the 2% price stability target."

He added that unlike in Europe or the United States, Japan's expected inflation rate has remained low, noting, "I am concerned that the inflation rate might rise even further due to the added impact of the situation in the Middle East."
 
(Photo: Yonhap News)