The Bank of Japan's December policy meeting minutes reveal a core judgment: Japan's real interest rates are far from normal levels at present. The consensus among members is straightforward—the current policy rate is still quite distant from a neutral level that is neither stimulating nor restraining, indicating that the normalization process of monetary policy is only halfway through, and there is still considerable room for future rate hikes.

Details of the discussions in the minutes further reinforce this hawkish stance. One member explicitly pointed out that Japan's real policy interest rate is significantly lower than that of other major economies globally, and considering the impact of exchange rate fluctuations on price transmission, further tightening of accommodative policies is necessary. At the December 19 meeting, the Bank of Japan had already raised the benchmark interest rate to 0.75%, reaching a nearly 30-year high.

Market expectations for the subsequent pace remain relatively clear. Economists generally believe that the next rate hike will occur in about half a year, and there is a fairly consistent view among the market regarding the terminal rate of this rate hike cycle—mainstream expectations are around 1.25%. Of course, there are more aggressive opinions, suggesting that breaking through 1.50% before early 2027 is also not entirely impossible.

Interestingly, regarding the neutral interest rate itself, the Bank of Japan's attitude is quite cautious. They do not believe that the neutral rate can be pinned to a specific number, but instead insist on maintaining greater policy flexibility. Internal research by the central bank suggests a broad range for the neutral rate—roughly between 1% and 2.5%—this framework leaves ample room for subsequent policy adjustments.