Japan government must remember commitment to fiscal side of BOJ pact

Central bank seems tempted to slow the process of monetary policy normalization

Masaaki Shirakawa

October 11, 2024 05:05 JST

The Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo. © Reuters

Masaaki Shirakawa is a distinguished guest professor at Aoyama Gakuin University in Tokyo and a former governor of the Bank of Japan.

The neutral (or natural) interest rate is a key concept in shaping monetary policy. Defined as the real (or inflation-adjusted) rate that balances aggregate demand with supply capacity, it neither accelerates nor decelerates inflation. It serves as a benchmark for assessing the restrictiveness of monetary policy.