IMF: Bank of Japan Expected to Gradually Raise Interest Rates to Neutral Levels, Economic Growth for This Year and Next Year Both at 0.7%

Jin10 Data, October 13 – The International Monetary Fund (IMF) stated on Tuesday that despite the anticipated slowdown in Japan's economic growth, the Bank of Japan may still gradually raise interest rates, bringing them "closer to neutral levels." This policy trajectory is similar to that of other central banks facing inflationary pressures. In its *World Economic Outlook* report, the IMF noted: "Japan's economic growth rate is expected to slow to 0.7% by 2026, with fiscal support measures partially mitigating the impact of rising energy prices. As the energy shock subsides and monetary policy gradually normalizes, economic growth will stabilize at this level by 2027." Japan's economy grew by 1.2% last year, and the IMF projects that Japan's economic growth rate will remain at 0.7% in both 2026 and 2027. While the IMF did not name specific countries, it emphasized that monetary policy should only refrain from responding to the direct and short-term indirect effects of inflation caused by shocks if those shocks are deemed temporary. The report further stated that even if the impact of shocks is considered negligible in the short term, central banks may still need to raise nominal interest rates if inflation expectations rise, in order to maintain stable real borrowing costs.