In a speech delivered on Thursday, Junko Koeda, a board member of the Bank of Japan, emphasized the necessity for the central bank to persist in normalizing interest rates. This approach aims to restore real rates to equilibrium and avert potential future distortions. Koeda pointed out that current supply–demand indicators reveal the output gap is close to zero, and the labor market is experiencing heightened pressures due to a growing labor shortage. She stated, "Given these circumstances, it is imperative for the bank to continue increasing the policy interest rate and recalibrate the level of monetary accommodation according to improvements in economic activity and pricing." Koeda highlighted the importance of monetary policy that takes into account both immediate and long-term effects, guided by data available at each juncture.
Moreover, the central bank's Outlook Report for October 2025 anticipates a temporary slowdown in economic growth, followed by a recovery. Furthermore, the report suggests that the impact of rising food prices, particularly rice, is likely to diminish by the first half of the forthcoming fiscal year.
