Bank of Japan to Pledge Further Rate Hikes at Next Week's Meeting

The Bank of Japan (BOJ) is set to maintain its pledge to keep raising interest rates at its policy meeting next week, but the pace of future hikes will depend on the economy's reaction to each increase. Markets have almost fully priced in a rate hike to 0.75% from 0.5% on December 18-19, after Governor Kazuo Ueda's signaled the move. The BOJ's policy rate would reach levels unseen in three decades, nearing the estimated neutral rate range of 1.0%-2.5%. The BOJ will focus on the economic impact of each rate hike rather than neutral rate estimates, which are difficult to gauge the exact level. Japan's real borrowing costs remain deeply negative, justifying further rate increases, according to sources. The central bank will likely stress this point to justify further rate increases, with decisions based on bank lending, corporate financing conditions, and other economic activity.