Bank of Japan expected to stick with rate hike pledge as path hinges on economic response

The Bank of Japan is expected to maintain its pledge to keep raising interest rates at next week's policy meeting, while emphasizing that any additional moves will depend on how the economy responds to each hike, BlockBeats reported on December 12, citing three unnamed sources. BOJ Governor Kazuo Ueda has effectively signaled a December rate increase, and markets have almost fully priced in a move from 0.5% to 0.75%, with focus now on how far the central bank can lift rates toward a neutral level. The sources said the BOJ may internally revise its estimate of how far the current policy rate is from the neutral rate but will avoid using that estimate as its main communication tool for the future tightening path because of forecasting challenges. Instead, the BOJ will explain that upcoming decisions will be guided by how past hikes have affected bank lending, corporate funding conditions and other economic activity, with one source saying Japan's very low real interest rates allow the central bank to proceed with rate hikes in several stages, a view shared by the other two sources.