The International Monetary Fund (IMF) has expressed support for the Bank of Japan (BOJ) to gradually raise interest rates, citing increasing inflation expectations and the need to normalize its ultra-loose monetary policy.
In an interview with Reuters at the Jackson Hole economic symposium, IMF chief economist Pierre-Olivier Gourinchas noted that Japan’s inflation has surpassed the BOJ’s 2% target, with expectations moving towards or even exceeding this level. He praised the BOJ’s recent steps towards normalizing policy, including ending negative interest rates in March and raising the short-term policy rate to 0.25% in July.
Gourinchas emphasized that further rate increases will be data-dependent, with the BOJ closely monitoring inflation, wage growth, and inflation expectations. He acknowledged that Japan’s economic growth will slow in 2024 but stressed that inflation, not economic activity, is the BOJ’s primary focus.
The IMF’s endorsement comes as BOJ Governor Kazuo Ueda has signaled the bank’s readiness to continue raising interest rates if inflation progresses towards meeting its 2% target. The BOJ’s efforts aim to realign inflation expectations, which have been too low for decades, and achieve sustainable economic growth.
