BOJ is said to see hiking cycle likely extending beyond 0.75%

The Bank of Japan (BOJ) headquarters in Tokyo, Japan, on Friday, Sept. 19, 2025. The BOJ took another step toward policy normalization, announcing it would start to offload its massive exchange-traded fund holdings even while keeping interest rates steady in a contested vote as two dissenters pushed for a hike.

Bank of Japan officials consider it likely that interest rates will rise above 0.75% before their rate hike cycle is over, according to people familiar with the matter, a sign that more increases may be in store after a widely expected move next week.

The officials don’t think the BOJ would be at the so-called neutral rate if borrowing costs are raised to 0.75%, according to the people. Some officials already see that 1% would still be below the neutral rate, they said. The neutral rate is the level at which the central bank’s policies are deemed neither restrictive nor stimulative and is usually the end goal of any cycle of policy moves.

Even if BOJ officials update their estimate of the rate with the latest data, at this point they do not see the range drastically narrowing, according to the people. A narrower range suggests a central bank is closing in on the neutral rate.

Earlier this month Governor Kazuo Ueda fed market speculation over the neutral rate, by saying the bank would like to publish its latest estimate when it can narrow down the range. Still, he warned that it’s a concept that must be viewed with considerable breadth.

All 50 BOJ watchers surveyed by Bloomberg expect the bank to raise its benchmark rate to 0.75% on Friday next week. Many of them said the key focus of the gathering is whether the BOJ provides a new neutral rate analysis as they search for clues on the rate hike path going forward.

The survey estimate for the terminal rate for this hiking cycle is 1.25%, indicating two more hikes beyond the move next week before the BOJ stops its rate increases.

The bank currently sees the nominal range of the neutral rate at between around 1% and 2.5%.

BOJ officials even see the possibility for error in the upper and lower points of the range, the people said. The central bank will therefore continue to examine the impact of each rate hike before determining the ideal policy rate level, they added.

While the bank is expected to keep saying that conditions are still accommodative, the people said that officials will be looking closely at the state of lending and the lending stances of banks to decipher how accommodative current rates really are.