Masu urges rate increases into 1.1 to 2.5 percent neutral range
Bank of Japan Policy Board member Kazuyuki Masu stated on September 10, 2026, that the central bank must raise its policy interest rate above the current 1.0 percent level and into the estimated neutral range of 1.1 to 2.5 percent to complete monetary normalization.
Targeting the neutral zone
Speaking to local leaders in Fukui, Policy Board member Kazuyuki Masu emphasized that the Bank of Japan needs to advance policy normalization after implementing five rate increases since March 2024.
Japan's policy interest rate stands at 1.0 percent, remaining below the estimated neutral rate range of 1.1 to 2.5 percent.
Masu argued that one- and two-year real interest rates remain negative, creating risks of real estate overheating and excessive corporate borrowing.
With scheduled cash earnings growing at around 3 percent and underlying inflation approaching the 2 percent target, Masu noted that financial conditions remain accommodative and require further upward adjustments to the benchmark rate.
Cost shocks and bond tapering
External disruptions and enduring domestic cost pressures complicate the outlook.
Masu highlighted supply risks from the Strait of Hormuz, where over 70 percent of Japan's crude oil imports pass, alongside motor freight transportation costs rising nearly 6 percent.
On the balance sheet, the BOJ halted the reduction of its Japanese government bond purchases in June 2026, fixing monthly buying at roughly 2 trillion yen from fiscal 2027, down from an annual peak of 135 trillion yen.
No room for prolonged hesitation
Masu delivers a decisive argument for lifting the policy rate beyond 1.0 percent.
By anchoring policy normalization to the neutral rate range, he warns that prolonged accommodation invites severe inflation and asset distortions.
This stance confirms that the central bank will not pause its tightening cycle prematurely.