Japan Interest Rate

The Bank of Japan should continue normalizing interest rates to bring real rates back to equilibrium and avoid future distortions, board member Junko Koeda said in a speech Thursday. She added that supply–demand indicators show the output gap near 0% and labor markets are tight amid a growing labor shortage. “In this situation, I believe it is necessary that the bank continue to raise the policy interest rate and adjust the degree of monetary accommodation in accordance with improvement in economic activity and prices,” she noted. Koeda emphasized that monetary policy must consider both short-and long-term effects and be guided by data at each point in time. Meanwhile, the central bank’s October 2025 Outlook Report forecasts a temporary slowdown in economic growth, followed by a recovery. It expects the impact of elevated food prices, particularly rice, to ease by the first half of the next fiscal year.