The Organisation for Economic Co-operation and Development (OECD) expects the Bank of Japan's policy rate to reach 2% by the end of 2027, a more hawkish outlook than forecasts from many economists and global institutions, Bloomberg reported Wednesday.
In its economic survey released Wednesday, the OECD said Japan's current policy rate remains near the lower end of the neutral range, assuming inflation stays around the BOJ's 2% target. It said the central bank should continue raising rates gradually as domestic demand remains firm, according to the report.
OECD Secretary-General Mathias Cormann said the pace of normalization could accelerate as Japan's economic equilibrium becomes clearer, while stressing the BOJ is not yet materially behind the curve on inflation, the report said.
The 2% projection is above estimates from the International Monetary Fund and market economists, many of whom expect the tightening cycle to peak near 1.5%. OECD officials attributed the difference to a more optimistic view of Japan's growth potential, according to the report.
The report also urged Japan to strengthen fiscal buffers through gradual consumption tax increases and called for broader labor participation, including from women, older workers and foreign employees, to address worsening labor shortages, the report said.
(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)