BOJ Board Member Asada Says Terminal Interest Rate Is Closely Tied to the Neutral Rate

Bank of Japan board member Asada has stated that the terminal interest rate for the policy cycle is closely linked to the neutral rate, the level at which monetary policy is neither restrictive nor accommodative. The remark frames how far the BOJ may ultimately lift its policy rate, shifting attention from the pace of hikes to the destination. The transmission runs through the rate differential between Japanese and US yields, which shapes yen funding costs and carry-trade positioning, while expectations for the neutral rate feed into longer-dated JGB yields and term premia. Japanese government bonds, the yen, and Japanese bank equities are most sensitive, since a higher perceived neutral rate lifts net interest margins but pressures bond valuations and the currency's relative attractiveness. Traders will watch the next Tokyo CPI print and the BOJ's upcoming outlook report for any updated estimate of neutral and the inflation trajectory that would justify further tightening.

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