Japan's Nominal Neutral Rate May Exceed 1%, BOJ Member Says

Junko Koeda, a member of the Bank of Japan's Policy Board, stated on Thursday that she believes Japan's nominal neutral interest rate is above 1%. According to current staff estimates, the BOJ considers the real neutral rate to be between -0.9% and +0.5%. Assuming inflation fluctuates around the BOJ's 2% target, this suggests the nominal neutral rate would range from 1.1% to 2.5%. 'My view is that the lower bound of Japan's neutral rate may be above 1%,' Koeda said at a press conference. The nominal neutral rate is closely watched by the market as it can indicate how far the central bank's short-term policy rate is from a level that is neutral to the economy. The BOJ currently sets the short-term policy rate at 0.75%.