IMF expects gradual BOJ rate hike towards neutral setting
TLT•The IMF said the Bank of Japan will likely raise interest rates gradually toward a neutral setting, while projecting Japan’s economy to grow 0.7% in both 2026 and 2027. It said temporary currency intervention can be considered when exchange-rate moves are disorderly or threaten price stability.
1. Rate outlook
The IMF said the Bank of Japan will likely raise interest rates gradually toward a neutral setting despite an expected slowdown in growth. It projected Japan’s economy to grow 0.7% in 2026, after expanding 1.2% last year, and to grow 0.7% again in 2027.
2. Inflation and currencies
The IMF said fiscal support measures would partly cushion the impact of higher energy prices, while growth would stabilise as the energy shock dissipates and monetary policy gradually normalises. It said central banks may need to raise nominal rates if inflation expectations rise. The report said temporary foreign exchange intervention can be considered when currency moves become disorderly, market liquidity evaporates or exchange rates threaten price stability.
