Ryozo Himino recently addressed Japan’s transition from a prolonged period of near-zero or negative interest rates to a new phase characterized by positive rates. This shift prompts critical inquiries regarding the type of economy that will develop and the strategies necessary to adapt to this change.

Himino pointed out that the effects of positive interest rates go beyond their simple presence, indicating a complex economic landscape with various forms and pathways. He presented a conceptual framework for establishing policy rates, highlighting the significance of the real policy rate, which is derived by adjusting the nominal rate for inflation expectations, in shaping economic activity.

The central bank’s method for determining the suitable real policy rate will be influenced by its monetary policy stance, which seeks to align inflation with predefined price stability targets. A comprehensive understanding of interest rates and economic dynamics is vital as Japan navigates this important monetary policy transition.

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