Japan's Rate Hike Era Continues: IMF Sees Strong Economy

The Bank of Japan (BOJ) has been gradually raising interest rates from historically low levels, and according to IMF First Deputy Managing Director Dan Katz, this trend will continue. Katz stated that 'the Bank of Japan has started to move out of its very low interest rate regime that was in place for almost three decades and normalize policy.'

This shift is part of a broader economic transformation in Japan, which has been driven by structural reforms implemented during the Shinzo Abe years. Katz credited these reforms with being 'a very significant long-term transformation' that is just beginning to pay off.

The BOJ's rate hikes have had a significant impact on the yen, which has shed around 1.3% against the US dollar since its August 3 high. The joint U.S.-Japan intervention last week underscored the currency's persistent weakness, and Treasury Secretary Scott Bessent warned traders that Washington was ready to move again if needed.

Katz emphasized that the BOJ should continue to normalize policy while supporting growth, and that prices are still modestly above target. He expects the central bank to keep raising rates in a slow and careful climb.