In a recent speech delivered in Okayama, Naoki Tamura, a key figure at the Bank of Japan, highlighted the necessity for the central bank to increase interest rates to a minimum of 1% to support the sustainable achievement of the BOJ's 2% inflation goal. Tamura's remarks signify the first time a BOJ policymaker has publicly specified a target level for short-term borrowing costs that the central bank should aim for.
Tamura also discussed the estimation of Japan's neutral interest rate, suggesting that it lies at least around 1% and emphasizing the importance of pushing up short-term policy rates to ensure the fulfillment of the BOJ's price target. He stressed the need to raise rates gradually and in stages, monitoring the impact of each adjustment on economic activity, while refraining from disclosing details on the exact timeline for further rate hikes. The recent shift in the central bank's approach, abandoning negative interest rates and setting short-term rates at 0.25% in July, reflects its confidence in the economy's progress towards achieving the 2% inflation target.