Neutral interest rate evaluation fine-tuned with no "surprises," Japan's monetary policy trajectory expected to remain unchanged.

As a key indicator for measuring the policy interest rate adjustment space, the latest estimation of the neutral interest rate by the Bank of Japan is generally consistent with previous forecasts, so analysts believe that this is unlikely to prompt economists to adjust their expectations for the path of Japan's monetary policy. In a report released on Friday, the Bank of Japan set the neutral interest rate estimate range at -0.9% to 0.5%, compared to the previous estimate range of -1% to 0.5%. The Bank of Japan stated, "Consistent with before, there is still a large dispersion in this estimate." The bank also stated, "Following the practices of central banks in Europe and the United States, it comprehensively assesses the current degree of monetary easing." The neutral interest rate is the theoretical policy interest rate level adjusted for inflation, which can maintain economic equilibrium, neither causing growth to exceed potential levels nor restraining the economy. Given the Bank of Japan's 2% inflation target, the nominal neutral interest rate range after recalculating is 1.1% to 2.5%. Elias Haddad, Global Head of Market Strategy at Brown Brothers Harriman, pointed out, "The slight upward revision of the lower limit of the neutral interest rate range only implies that the marginal easing strength has weakened, and does not indicate that the central bank will embark on a more aggressive interest rate hike cycle." This rate reassessment was disclosed early last week by Bank of Japan Governor Haruhiko Kuroda, attracting the attention of market observers. The current benchmark interest rate of the Bank of Japan is 0.75%, and the market is continuously calculating the final height of this round of interest rate hikes by the bank's policy committee. There were speculations that the new estimation might release signals of a terminal rate hike for this round. However, the minimal change in magnitude practically caused little market disturbance. Economist Taro Kimura stated, "The Bank of Japan updated the estimate of the neutral interest rate on Friday, with the estimated range largely unchanged. It is noteworthy that the bank downplayed the importance of this indicator, stating that the estimate has uncertainty and that a comprehensive assessment of broader indicators, including the financial environment, is necessary to determine the appropriate interest rate level. This implies that this estimation will not be the core basis for the Bank of Japan's policy making." Meanwhile, the Bank of Japan mentioned in the report that several components used in the calculation showed a moderate upward trend compared to previous estimates due to rising potential growth rates and decreased demand for safe-haven assets. The Bank of Japan emphasized in the report, "The key is to examine a wide range of indicators related to financial conditions, which can be seen as channels for monetary policy transmission to the real economy, including financing costs, fund availability, asset prices, and financing scale." The outbreak of the conflict in the Middle East has added uncertainty to the Bank of Japan's rate hike path. Trader data shows that the market expects a probability of about 68% for the Bank of Japan to raise interest rates at the next policy meeting on April 28. Kuroda stated last week that he would closely monitor the inflation risks brought by this conflict. It is understood that Japan relies almost entirely on oil imports, with over 90% of its crude oil supply coming from the Middle East, making it one of the major economies most affected by the conflict in Iran. A survey conducted last month on observers of the Bank of Japan showed that respondents expected, on average, that the terminal interest rate for this round of interest rate hikes by the Bank of Japan would rise to 1.5%.