Sources say the Bank of Japan will pledge further interest rate hikes at its policy meeting next week.

According to three sources, the Bank of Japan (BOJ) is likely to maintain its commitment to continue raising interest rates next week, but will emphasize that the pace of further increases will depend on the economy's response to each hike. BOJ Governor Kazuo Ueda has essentially announced a December rate hike ahead of schedule, and the market has almost fully priced in the possibility of raising the rate from 0.5% to 0.75% in December. Market focus has shifted to the extent to which the BOJ can raise rates to a neutral level. Sources say that while the central bank may internally update its estimate of the policy rate's distance from what is considered neutral, it will not use this estimate as the primary communication tool for future rate hike paths due to the difficulty in making precise predictions. Instead, the sources indicate that the BOJ will explain that future rate hike decisions will be based on considerations of how past rate hikes have affected bank lending, corporate financing conditions, and other economic activity. One source stated, "Japan's real interest rates are very low, which allows the BOJ to continue raising rates in several phases," a view echoed by two other sources. (Jinshi)