- Using latest data, the estimate of the natural rate of interest is around -0.9% to +0.5%
- That estimate is as of Q3 2025
- BOJ latest estimation is based on six models, including time-series and structural models
- Although the range itself has not changed significantly, a closer look reveals that many of the estimates have recently been moderately on the rise
- The rise reflects a rebound in Japan's potential growth rate after the Covid pandemic and also an environment in which wages and prices are both rising moderately becomes entrenched
- Full assessment
All that being said though, the BOJ does note that "there are many caveats when it comes to its (natural rate estimate) use in actual policy conduct". Adding that it is also still difficult to pin down the level of natural rate of interest in advance.
But based on the statistical evidence, the BOJ will work with that to adjust the degree of monetary accommodation towards sustainably achieving its 2% price target.
Once again, this looks to be just some added proof to cover all their bases. That after the releasing a new monthly core CPI estimate here yesterday.
As mentioned then, the BOJ has come under quite a bit of scrutiny - not least from the Japanese government itself - on continuing to pursue the path of raising interest rates despite recent data showing some decline in underlying inflation pressures.
So by estimating a higher level of the natural rate of interest, it is a signal that higher policy rates are needed to avoid conditions such as the economy overheating and/or to keep inflation in check.
