By Megumi Fujikawa

TOKYO--Bank of Japan deputy Gov. Ryozo Himino said Thursday that real interest rates shouldn't remain negative once the economy overcomes its challenges, reaffirming the central bank's promise to keep raising its policy rate.

"I don't think it's normal for real interest rates to remain clearly negative if shocks and deflationary factors are resolved," Himino said at an event hosted by Hitotsubashi University in Tokyo.

"We are entering a world with nominal interest rates, but we are still some distance away from a world with real interest rates," he added.

The deputy governor reiterated that the BOJ would consider additional rate increases if economic and prices developments align with expectations. However, he didn't provide any hints on the timing or pace of future hikes.

Last week, the BOJ raised its policy rate to 0.5% from 0.25%, citing expectations of strong wage growth this year and progress toward achieving stable 2% inflation in the Japanese economy.

"Even after the rate hike, real interest rates remain significantly negative, and the accommodative monetary environment will be maintained," Himino said, adding, "This will likely continue to firmly support economic activities."

The BOJ's policy board expects inflation to stay near its 2% target for the next two years, as the so-called virtuous cycle of income, spending and inflation begins to function more smoothly.

Many economists expect at least one more rate hike to 0.75% later this year. However, some argue that the BOJ should carefully evaluate its next move, as rates are approaching neutral levels--territory Japan hasn't experienced in the past 30 years.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

January 30, 2025 02:23 ET (07:23 GMT)

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