BOJ May Break 0.5 Pct Policy Rate Barrier

Tokyo, Jan. 25 (Jiji Press)--The Bank of Japan is on course to raise the policy interest rate past the so-called 0.5 pct barrier, unbroken for almost 30 years, if policymakers become confident that the country will achieve 2 pct inflation stably and sustainably.

The central bank's board voted Friday to increase its target for the unsecured overnight call rate, the country's benchmark short-term interbank lending rate, to around 0.5 pct from around 0.25 pct.

If the BOJ continues to raise the rate, it will become close to the so-called neutral rate of interest, which neither stimulates nor cools the economy.

The BOJ expects to raise the policy rate to the neutral rate, believed to be between 1 pct and 2.5 pct, by the end of fiscal 2026. A senior BOJ official has said that the central bank should raise the policy rate to at least 1 pct.

Determining the actual neutral rate is difficult, however. BOJ Governor Kazuo Ueda has said that the question of when to stop raising rates remains a major challenge.

[Copyright The Jiji Press, Ltd.]