Bank of Japan press conference — 19 December 2025

What this says

At today's meeting, regarding the guideline for money market operations, we decided unanimously to change the target for the uncollateralized call rate overnight, which is the policy interest rate, from the previous approximately 0.5% to approximately 0.75%.

Organizing the environment surrounding wages, the tight labor supply-demand situation continues, and corporate profits are expected to remain at a high level overall even after factoring in the effects of tariff policies.

Meanwhile, uncertainty remains regarding the impact of the U.S. economy and various countries' trade policies, but it is declining.

Looking at prices, with the pass-through of wage increases to selling prices continuing, the underlying rate of increase in consumer prices continues to rise moderately.

Regarding future monetary policy conduct, given that the current real interest rate is at an extremely low level, if the economic and price outlook presented in the Outlook Report is realized, we believe that we will continue to raise the policy interest rate in accordance with improvements in economic and price conditions and adjust the degree of monetary easing.

Given this, we believe it is appropriate to continue to examine the response of the economy and prices to changes in short-term interest rates and to adjust the degree of monetary easing while exploring the level of the neutral interest rate from such observations.

As for the meaning of real interest rates being extremely low even at 0.75%, one point is that, as I said it is difficult to specify precisely, but there is still some distance to what could be considered a kind of lower bound of the estimated range for the neutral interest rate.

First, regarding the impact of raising the rate from 0.5% to 0.75%, this is not simply a situation where accommodative conditions continue unchanged; rather, we are conducting an operation that slightly weakens the degree of easing.

As for how exchange rate considerations influenced today's decision, please look at the Summary of Opinions for details, but I would like to note that multiple members pointed out that the recent weak yen is having an upward impact on import prices and, through pass-through, on domestic prices, or may have such an impact going forward, and that in some cases it may affect underlying prices, and that this needs to be monitored.

From my perspective, with underlying inflation being quite difficult to read, it is very difficult to conduct policy based on that.

Our current basic approach is to decide policy management by placing importance on underlying prices rather than headline inflation, and when looking at underlying price movements, while there are various indicators and it is difficult, the fundamental question is whether the mechanism in which wages and prices both rise moderately will continue, and at what level it will continue.

While confirming that, as one piece of the puzzle, regarding wages, from the previous meeting to the current situation and looking ahead over the next few months, the movement of next year's spring wage negotiations will be important, and we have been saying that we want to confirm the initial momentum.

And while wages rise as forecast and that continues to pass through to prices — we will be confirming this continuously and gradually — if it continues, it is entirely possible that a rate hike will come into view at an appropriate timing. I think that is quite likely.

And regarding the latter part of your question about what happens if there are exceptional movements different from such normal movements, as I have been saying, we will act flexibly, including conducting operations as necessary.

As you said, the fact that downside risks to both inflation and growth rates have declined means that the probability of the outlook being realized has increased, and that led to the rate hike decision.

I must say that it depends entirely on the information and data that will come in between now and the next meeting, or the meeting after that.

although it is insufficient, the fact that we are still slightly below the estimated lower bound of the neutral interest rate is probably one piece of weak evidence.

regarding how the path of bond purchases and our government bond holdings will evolve going forward, we plan to conduct another regular review in early summer next year, and if truly necessary, it is possible that we could conduct an extraordinary review at a policy meeting.

There may be such an aspect, but in theory, if wages continue to rise — rising at a rate consistent with 2% inflation — that would be the desirable outlook. If that happens, for various companies, including food-related companies, that would be a kind of cost increase, so it is possible that the corresponding pass-through to prices would continue to occur.

This is a general statement, but if the timing of a rate hike is mistaken, or if it is delayed, as I always say, there is often a possibility that an extremely large rate hike will be forced later.

To look at the fundamental part of the baseline rise in prices, where wages and prices influence each other and rise little by little, wages are indeed a major point.

Rather than "address," I think your question is about how much room there is for rate hikes. As I have been saying since earlier, we would like to make judgments while checking the impact of this rate hike on the economy, prices, and the financial environment.

Regarding the relationship with Abenomics, basically — Abenomics, or rather, I believe we have conducted monetary policy in accordance with the joint statement (Note) between the government and the Bank of Japan, and I recognize that we are now entering the final stage of finishing it up.

When calculating the real interest rate, what to use for expected inflation is a concept that varies depending on the thinking of the person doing the calculation. However, even if one calculates using various expected inflation rates, I think it can be said clearly that from the overnight policy rate out to the 2- to 3-year short-term zone, it is significantly negative.

it possible that you also think, for example, that ending at 0.75% and stopping rate hikes could be neutral?

The important point is that this is something that cannot be fully narrowed down by statistical estimation work alone, or rather, that we are in such a situation. Therefore, to repeat, I think we must feel our way forward while watching how the economy responds to interest rate changes.

If we count from 2022, when the current inflation began, the yen-dollar rate has weakened by about 40 yen. This greatly exceeds the range of ordinary business-cycle fluctuations, and I think it is an extremely extraordinary magnitude of change.

But one factor is that the interest rate differential between Japan and overseas had a large impact during the period you mentioned.

Transcript

December 22, 2025 Bank of Japan

Governor's Press Conference — From 3:30 p.m. on Friday, December 19, 2025, for approximately 70 minutes

(Q) Please explain the content of today's Monetary Policy Meeting.

(A) At today's meeting, regarding the guideline for money market operations, we decided unanimously to change the target for the uncollateralized call rate overnight, which is the policy interest rate, from the previous approximately 0.5% to approximately 0.75%. Accordingly, we also decided to change the applicable interest rate for the complementary deposit facility and the basic loan rate. Next, I will explain the economic and price conditions behind this change in the guideline for money market operations. First, regarding the economy, while some weak movements are seen, it is recovering moderately. Organizing the environment surrounding wages, the tight labor supply-demand situation continues, and corporate profits are expected to remain at a high level overall even after factoring in the effects of tariff policies. Under these circumstances, based on the labor and management's policy stance toward the spring wage negotiations and information from hearings conducted through the Bank of Japan's head office and branches, it is highly likely that solid wage increases will be implemented next year, following this year, and the risk that firms' proactive wage-setting behavior will be interrupted is considered low. Meanwhile, uncertainty remains regarding the impact of the U.S. economy and various countries' trade policies, but it is declining. Looking at prices, with the pass-through of wage increases to selling prices continuing, the underlying rate of increase in consumer prices continues to rise moderately. In this way, from recent data and hearing information, it is considered highly likely that the mechanism whereby both wages and prices rise moderately will be maintained, and going forward, the probability is increasing that the central outlook — that the underlying rate of inflation will be at a level broadly consistent with the 2% price stability target in the latter half of the projection period in the Outlook Report — will be realized. Based on these economic and price conditions, at today's meeting, from the perspective of achieving the 2% price stability target in a sustainable and stable manner, we judged it appropriate to adjust the degree of monetary easing. Even after the change in the policy interest rate, real interest rates will remain significantly negative, and the accommodative financial environment will be maintained, so we believe we will continue to firmly support economic activity.

Regarding future monetary policy conduct, given that the current real interest rate is at an extremely low level, if the economic and price outlook presented in the Outlook Report is realized, we believe that we will continue to raise the policy interest rate in accordance with improvements in economic and price conditions and adjust the degree of monetary easing. The Bank of Japan, under the 2% price stability target, from the perspective of achieving it in a sustainable and stable manner, will conduct monetary policy appropriately in accordance with economic, price, and financial conditions.

(Q) Please explain in detail the reasons for deciding on an additional rate hike today. In addition to the wage increase outlook that was used as a basis for judgment, please tell us about the U.S. tariff policies, whose uncertainty is said to have declined, and your assessment of the U.S. economy at present.

My second question is about your thinking on the pace of future rate hikes and the neutral interest rate. Even after this rate hike, monetary conditions remain accommodative, and you have said that you will continue to raise the policy interest rate and adjust the degree of easing in accordance with economic and price conditions. The lower bound of the estimated range for the neutral interest rate that you have previously indicated is 1%, and with this rate hike we are approaching that lower bound. If there are any data or information that you will observe with even greater caution in future rate hikes, please tell us.

(A) First, regarding the background of the rate hike. At the previous meeting in October, in addition to the situation where uncertainty surrounding overseas economies, including the United States, remained high, from the perspective of determining whether Japanese firms' proactive wage-setting behavior would not be interrupted, we wanted to confirm whether the initial momentum toward next year's spring wage negotiations was solid, and therefore we left the policy interest rate unchanged. Looking at developments since then, first regarding the U.S. economy, while the pass-through of tariff costs to selling prices continues to be moderate, personal consumption is performing solidly. Also, against the backdrop of expanding AI-related demand, capital investment continues to increase. Based on these points, while there are still many points requiring attention such as labor market developments, the downside risks to the overall economy are considered to have declined compared to some time ago. Next, regarding the impact of tariff policies on Japan's economy, while downward pressure is being exerted on profits, mainly in the manufacturing sector, we believe that no spillover to the overall economy is observed, including capital investment and employment/wage developments. Under these circumstances, looking at the Tankan released this week, corporate profits, including in the manufacturing sector, saw this fiscal year's profit plans revised upward slightly from the plans three months ago, and uncertainty about the outlook is gradually diminishing. In this way, while uncertainty remains regarding the U.S. economy and the impact of tariff policies, it is declining. On that basis, as I mentioned earlier, based on the labor and management's policy stance toward next year's spring wage negotiations that has become clear during this period, and information from hearings conducted through our head office and branches, it is highly likely that solid wage increases will be implemented next year, following this year. Combined with the fact that the underlying rate of increase in consumer prices continues to rise moderately, we judged that the probability is increasing that the mechanism whereby both wages and prices rise moderately will be maintained going forward, and that our central outlook for the economy and prices will be realized. Based on these economic and price conditions, at today's meeting, from the perspective of achieving the 2% price stability target in a sustainable and stable manner, we judged it appropriate to raise the policy interest rate and adjust the degree of monetary easing, in line with the monetary policy conduct stance we have previously presented.

Next, regarding your question about the future. First, the pace of adjusting the future interest rate path and the degree of monetary easing depends on future economic, price, and financial conditions, and at each Monetary Policy Meeting, we will appropriately judge while updating the outlook for the economy and prices, the risks, and the probability of the outlook being realized. As for the neutral interest rate, as I have said for a long time, the estimated value of the neutral interest rate has considerable variation. Therefore, it is difficult to specify its level in advance, and it is necessary to view it with a considerable range. Given this, we believe it is appropriate to continue to examine the response of the economy and prices to changes in short-term interest rates and to adjust the degree of monetary easing while exploring the level of the neutral interest rate from such observations. In evaluating the degree of monetary easing, it is necessary to make a comprehensive judgment by carefully examining economic, price, and financial conditions, including not only the relationship between short-term interest rates and the neutral interest rate but also the level of real interest rates and lending developments.

(Q) I have two questions. First, with this rate hike, the policy interest rate has reached its highest level in 30 years. This can be seen as Japan taking another step out of its long period of deflation and low interest rates. As Governor, what are your thoughts on the historical significance of this rate hike bringing the policy interest rate to a 30-year high?

My second question is about future rate hikes. As you mentioned earlier, in today's statement, I believe the expression that even after the rate hike, real interest rates will remain significantly negative and at an extremely low level has been retained from before. Does this mean that because the so-called terminal rate has risen, even after a 0.25% increase there is still considerable distance to go, or does it simply indicate that the negative margin of real interest rates is deep? If you could explain a bit more about the background of your view that it is "extremely low," I would appreciate it.

(A) First, regarding 0.75% being a 30-year high, I think there is no particular special meaning to it. This is because 0.5% had been the upper limit for some time, but compared to that time, the inflation rate is markedly higher, and I think the environment is greatly different. That said, it is a fact that 0.75% is a 30-year high, so I would like to monitor what kind of impact it will have.

As for the meaning of real interest rates being extremely low even at 0.75%, one point is that, as I said it is difficult to specify precisely, but there is still some distance to what could be considered a kind of lower bound of the estimated range for the neutral interest rate. Also, as I mentioned earlier, regarding how much the neutral interest rate is, or in estimating the gap between the neutral interest rate and the actual interest rate, I said we would like to proceed by observing the response of the economy, prices, and financial conditions when interest rates are adjusted. We have already raised interest rates several times, including the transition from negative interest rates to zero interest rates. Looking back again at the changes in the economy, prices, and financial environment that accompanied these moves, it can be considered that the rate hikes did not produce an extremely strong tightening effect in those areas. Judging comprehensively from these points, I believe that real interest rates are still at an extremely low level.

(Q) I have two questions. Please tell us again about the impact of this rate hike on the economy, including housing loans and corporate borrowing. On the other hand, since you are supporting the economy, does that mean the effect of suppressing prices, including correcting the weak yen, is quite limited? Please address that point as well.

One more question. Returning to the neutral interest rate discussion from earlier, if there is a next rate hike, the policy interest rate will be 1%. That would mean it could be at the lower bound estimated by the BOJ. At this point, do you view that even if the rate rises to this level it would still be accommodative, or is it something that cannot be judged without observing the response of the economy and prices? Please tell us about that point as well.

(A) First, regarding the impact of raising the rate from 0.5% to 0.75%, this is not simply a situation where accommodative conditions continue unchanged; rather, we are conducting an operation that slightly weakens the degree of easing. Therefore, I believe support for the economy will continue, and I think there will be a certain impact on markets. On that basis, regarding the impact on the economy, I think the impact will differ somewhat depending on, for example, what zone of interest rates borrowing is conducted at. From the perspective of borrowers, real interest rates are still low in the short-to-medium-term zone, but they have risen somewhat in the long-term zone, so some impact will emerge going forward on long-term lending rates and the longer end of fixed-rate housing loans. However, I think that should also be judged relative to factors such as corporate profits being very strong and wages growing.

Then, regarding whether conditions could still be called accommodative if the rate were to reach 1% in the future, as you pointed out, of course it would be better if the neutral interest rate could be estimated more sharply, but I believe that is not so easy, so while continuing that work, basically we will judge by carefully observing the future response of the economy, financial environment, and prices after raising the rate to 0.75%.

(Q) Earlier, you mentioned lending developments as a factor for examining the economy. After raising the policy interest rate, I think there is a considerable time lag before it is reflected in actual interest rates such as the short-term prime rate and housing loans. Do you think that at future stages, there will be a need to some extent to wait and see until such lending developments show some abnormality before making policy judgments? That is one point.

The other point is about the recent weak yen. To what extent did this rate hike take into account the upside risks to prices from energy prices and food prices associated with the weak yen, as well as the impact on the underlying trend of prices? Please address these two points.

(A) When examining the impact of rate hikes on the economy, I said I want to look at the impact on the financial environment, and naturally that includes lending developments. As for lending itself, whether it moves immediately or not, I think there are areas where the marginal response is quick, but there are also aspects that move slowly. Even so, data comes in on a monthly basis, and before or simultaneously with that, various survey data on financial institutions' lending attitudes, firms' views on fund availability, and although somewhat lagged, corporate bankruptcy trends — various high-frequency data related to the financial environment are available. Together with various financial market variables, I would like to check what kind of impact is being exerted on the financial environment.

As for how exchange rate considerations influenced today's decision, please look at the Summary of Opinions for details, but I would like to note that multiple members pointed out that the recent weak yen is having an upward impact on import prices and, through pass-through, on domestic prices, or may have such an impact going forward, and that in some cases it may affect underlying prices, and that this needs to be monitored.

(Q) First, I would like to ask about the stance of gradual rate hikes toward the neutral interest rate. Regarding the values from the multiple neutral interest rate estimation models published by the BOJ, why did you publish something with such a range — was it published as a tool for dialogue? I would like to ask about that point. Also, when there are several such values, normally one would exclude the extreme upper and lower figures and average the remaining values or take the median, and there seems to be an image that these are kept in mind for policy conduct. Could you express more clearly, as a dialogue, where the

From my perspective, with underlying inflation being quite difficult to read, it is very difficult to conduct policy based on that. If that is the case, there is likely a strong tendency for people to focus not on economic indicators but only on comments from the Policy Board members and the Governor. I would like to ask how the Governor views this point, if possible. Thank you.

(Answer) Indeed, there is some concern of the kind you mentioned at the end, and so we have been striving, perhaps insufficiently, to explain in detail the basic thinking behind monetary policy and to gain understanding from an early stage. Our current basic approach is to decide policy management by placing importance on underlying prices rather than headline inflation, and when looking at underlying price movements, while there are various indicators and it is difficult, the fundamental question is whether the mechanism in which wages and prices both rise moderately will continue, and at what level it will continue. While confirming that, as one piece of the puzzle, regarding wages, from the previous meeting to the current situation and looking ahead over the next few months, the movement of next year's spring wage negotiations will be important, and we have been saying that we want to confirm the initial momentum. I said this at the previous press conference as well, and since there was some uncertainty as to whether it was fully understood, I explained it once again in detail in my speech in Nagoya.

(Question) I would like to ask about next year's price trends. Next year, as food price increases subside, the rate of increase in the consumer price index is projected to fall below 2% in some instances. So, to confirm: even if headline prices are falling significantly, depending on the situation of underlying prices, the economic conditions, and so on, is it your view that it is entirely possible to continue raising interest rates? That is my first point.

My second point is that long-term interest rates, as mentioned earlier, have exceeded 2% for the first time in 19 years and 7 months. This is thought to be due to views that the BOJ will continue raising interest rates, as well as concerns about fiscal deterioration. How does the Governor view this market development? Also, if interest rates rise sharply, how would the BOJ respond? Could you share your thinking on this once again?

(Answer) First, regarding next year's price trends, as you said, we expect that food inflation in particular will decline as an inflation rate, and with the government's price measures added to that, we are saying that headline inflation will fall significantly in the first half of next year and drop below 2%. Under that, this is somewhat about policy management, but to repeat, as monetary policy, we look at how the underlying rate of price increase will evolve rather than headline inflation movements. When we project how that will turn out, it will not decline in the way headline inflation does, but will be greatly influenced by wages and how wages affect prices. As I mentioned, the initial momentum toward next spring's wage negotiations is fair, so if wages rise as expected, I believe the underlying rate of price increase will not decline, at least. And while wages rise as forecast and that continues to pass through to prices — we will be confirming this continuously and gradually — if it continues, it is entirely possible that a rate hike will come into view at an appropriate timing. I think that is quite likely.

Then, I believe your question was about how I generally view long-term interest rates. Regarding the recent, short-term movements of long-term interest rates, I would like to refrain from specific comments, and it is fundamental that they are formed in the market. I believe they fluctuate reflecting the market's economic and price outlook, views on monetary policy that form the basis for that, views on fiscal policy, and overseas long-term interest rates. I would like to carefully monitor them. And regarding the latter part of your question about what happens if there are exceptional movements different from such normal movements, as I have been saying, we will act flexibly, including conducting operations as necessary.

(Question) Earlier, there was mention that a weak yen was pointed out as a factor pushing up prices. My first question is whether the current exchange rate level was factored into this decision.

My second point is about your recognition of the domestic economy. I believe the Governor has made remarks several times that the Japanese economy is in an inflationary state. Regarding the current economic situation, do you recognize that inflation has become prolonged?

(Answer) Regarding the relationship between exchange rates and prices, the comment was not that the weak yen is causing import prices to rise sharply, which is then greatly passing through to domestic prices and causing headline inflation to surge significantly. Rather, the comment was that attention is needed regarding the risk that the yen's depreciation so far could trigger such movements going forward.

Then, I believe your question was about whether the Japanese economy is in an inflationary state. Of course, both headline inflation and the underlying rate of price increase that we emphasize have certainly been above zero for the past few years. In that sense, I think it is in an inflationary state. However, within that, we are conducting monetary policy with the aim of converging the inflation rate sustainably and stably at 2%.

(Question) Two questions, somewhat related. First, in the statement, the impact of US tariffs is smaller than initially expected, and the underlying rate of price increase is not so much stalling as gradually rising, so I think the assessment of prices and the economy is somewhat more positive than at the October meeting. I believe this rate hike was decided after such an assessment, but does the fact that such a positive view was seen mean that multiple future rate hikes are in sight? What implications does this economic assessment have for future rate hikes? That is my first question.

My second point is about the distance between the neutral interest rate and the policy rate. At the press conference in Nagoya, you said that when a rate hike is made, you would clarify the distance a bit more. In reality, within the concept of a neutral interest rate that has a range, I think the distance is difficult to determine, but since you said earlier that there is a little distance from the lower bound, is that an explicit judgment of the distance between the current policy rate and the neutral rate? If there are any more hints about this distance for considering future rate hikes, I would appreciate it.

(Answer) As you said, the fact that downside risks to both inflation and growth rates have declined means that the probability of the outlook being realized has increased, and that led to the rate hike decision. On top of that, I believe your question was about whether this change in view has implications for the future interest rate path. I must say that it depends entirely on the information and data that will come in between now and the next meeting, or the meeting after that.

Then, I believe your question was about whether there is any more information about the sense of distance between the neutral interest rate and the actual interest rate. I must repeat the answer to the previous person's question, but although it is insufficient, the fact that we are still slightly below the estimated lower bound of the neutral interest rate is probably one piece of weak evidence. And as I mentioned, when looking at the effects of the rate hikes we have done so far, there does not appear to be evidence that the degree of monetary easing is rapidly tightening or shrinking.

(Question) Two questions. First, please tell me about concerns regarding the realization of the outlook going forward. There have been various points raised, but besides the impact of the US economy and US tariff policy, for example, there are concerns about China's economic deterioration — are there any other factors like that? Also, regarding wage increases, which were one of the factors in this rate hike decision, there may be views that wage increases could be difficult for small and medium-sized enterprises or depending on the industry. I would appreciate more information about such concerns. That is one point.

The other point is related to long-term interest rates — the reduction in government bond purchases that the BOJ is currently proceeding with. Please tell me whether the current pace might be having some impact on this rise in long-term interest rates, and whether there is any consideration of reviewing it.

(Answer) First, regarding what risks to look at in the outlook going forward — of course, we continue to view the impact of tariff policy on the US economy and the world economy as a risk factor. However, compared to a while ago, I believe the degree of risk has declined. Even so, we must remain vigilant — that is, at present, a considerable portion of the tariff impact is being absorbed by the US corporate sector in particular, but there is a fair possibility that this will be passed on more to consumers. If that happens, we must carefully monitor whether there will be an impact on US consumption or, from our perspective, on exports. Also, how long the favorable conditions around AI will persist is another point of debate. Regarding China as well, the trend of slight deceleration is becoming clear in the near term, and we view this as a risk. However, I believe that once things reach a certain point, some form of policy response will be taken, so I do not think it will become a serious situation. Regarding Japanese small and medium-sized enterprises, of course, as interest rates rise and wages must also be raised along with inflation, we are always paying attention from the perspective of whether they can keep up.

Then, I believe your question was about long-term interest rates and the relationship with the BOJ's bond purchases or the BOJ's government bond holdings. As I have said before, the stock effect — that is, the effect of us still holding a large amount of government bonds, even though somewhat reduced, in pushing down interest rates — is working to a considerable degree. However, the path of how operations will evolve in the future and how much government bond holdings will decline accordingly has been made fairly clear, so the market may be anticipating the future decline to some extent, and the stock effect may be somewhat smaller. In any case, regarding how the path of bond purchases and our government bond holdings will evolve going forward, we plan to conduct another regular review in early summer next year, and if truly necessary, it is possible that we could conduct an extraordinary review at a policy meeting.

(Question) One point, please. I believe the BOJ recognizes that food price increases are temporary, but is there no risk that this could change into something underlying? Especially if the current weak yen progresses or continues, is there no risk that food prices could remain in a state of underlying increase?

(Answer) There may be such an aspect, but in theory, if wages continue to rise — rising at a rate consistent with 2% inflation — that would be the desirable outlook. If that happens, for various companies, including food-related companies, that would be a kind of cost increase, so it is possible that the corresponding pass-through to prices would continue to occur. And looking at survey results about the reasons for food price increases, I believe a certain proportion of companies answer that this is one of the reasons. I think that part is one element of the underlying inflation rate.

(Question) Amid continued price increases, I think there is an aspect where the BOJ's cautious stance on rate hikes is contributing to high prices. Going forward, when raising interest rates, do you currently have any thoughts about making such decisions earlier than before?

(Answer) Needless to say, our making rate hike decisions at appropriate timing is what is necessary to smoothly bring prices to a sustainable and stable 2%, and I would like to continue making appropriate judgments so that this happens.

(Question) Regarding wage increases, this came up a little earlier, but I believe survey results have shown that many small and medium-sized enterprises said that matching the level of 2025 would be difficult. As large companies steadily proceed with wage increases, I think SMEs are in a position where their relative recruiting competitiveness is declining. Regarding this rate hike, please tell me how you assess the current business conditions of SMEs, and also, since the support from the accommodative environment will become somewhat weaker going forward, how do you view the impact on the overall economy of downward pressure on SME earnings from that?

(Answer) In the momentum check of the initial spring wage negotiation movements, we have tried to look at SMEs as much as possible, and I believe there have been some positive movements on both the labor and management sides, though I will omit specific names. Also, through our branch surveys, we are conducting hearings with SME contacts to a considerable extent. On top of that, regarding profits that are the premise for wage increases — for example, when checking profit trends by size in the Corporate Enterprise Statistics, the results show that SMEs are not necessarily doing badly. Therefore, I think that as a whole economy, SMEs are also achieving somewhat favorable profits. Accordingly, the issue is dispersion, or how very small micro-enterprises are doing, and I would like to monitor that by exhausting all available means.

(Question) Through your explanations so far, I understand the reason for judging that a rate hike could be made at the December meeting. Conversely, what is the reason for thinking that you had to, or should, decide in December by conducting, for example, wage increase surveys through branches? For example, was it with the prolonged weak yen in mind? Please share your thoughts on such points.

(Answer) This is a general statement, but if the timing of a rate hike is mistaken, or if it is delayed, as I always say, there is often a possibility that an extremely large rate hike will be forced later. That would be a major negative for the economy and finance, so that is the basic basis for the judgment.

(Question) You said that going forward, while watching the economy, prices, and financial conditions, and observing the response to rate hikes, you will search for where the neutral interest rate lies. When continuing to raise rates while it is uncertain where the neutral rate is, I think there is a risk of overshooting the neutral rate when raising rates. If so, for future rate hikes, unlike before, I think it will be necessary to make judgments about the economy, prices, and financial conditions more carefully. How about

By confirming this kind of wage increase in the shunto, if the last two rate hikes were decided on that basis, then I somewhat thought that the next time you raise rates, you would again be dependent on the shunto, or rather, you wouldn't be able to make that judgment without it. Looking ahead, what kinds of things do you think need to be confirmed in order to judge whether the mechanism of wages and prices rising gradually will take hold? Please tell us.

(Answer) To look at the fundamental part of the baseline rise in prices, where wages and prices influence each other and rise little by little, wages are indeed a major point. It just so happened — or rather, shall I say it just so happened — that these two rate hikes focused on wages, but how wage increases pass through to prices is of course a major point, and that is extremely difficult. As I have been saying, price movements come from both baseline price movements and temporary movements, so we first have to distinguish what the baseline price movement is. Having done that, looking at how things are moving and then making policy judgments is of course entirely possible, I think.

(Question) Since the press conference began, the yen has weakened, even if only slightly. I haven't been watching since then, but this suggests — as in your answer on the neutral rate — that the market may be interpreting your remarks on the next and subsequent rate hikes as somewhat cautious. The reason there is such high interest in the yen exchange rate is that the public, as consumers, are being tossed around by the yen exchange rate. They are suffering from inflation, and especially from food inflation. As you know, Japan's food self-sufficiency rate is only 38%, so food is extremely affected by the weak yen, and that is why price increases continue. In that sense, I think this rate hike is welcome, but if I may say so, it would have been good if things had gone far enough that, in terms of interest rate levels, 1% had already been achieved, so that the yen could appreciate and people's lives could become richer. In that sense, how about this: if uncertainty continues to fade going forward, is there a possibility that the pace of rate hikes could be accelerated?

(Answer) I will refrain from commenting on short-term exchange rate movements, but regarding the possibility you pointed out — that a weak yen affects prices, or especially affects baseline prices — with firms becoming more proactive in their wage- and price-setting behavior, I would like to watch this with attention.

(Question) This time, you assessed real interest rates as being extremely low or significantly negative. Regarding this wording, if we think about it in common-sense terms, it seems difficult to address with one more 0.25% rate hike. Can we understand that this significantly negative real interest rate, this extremely low real interest rate, could also be addressed with one remaining rate hike?

(Answer) Rather than "address," I think your question is about how much room there is for rate hikes. As I have been saying since earlier, we would like to make judgments while checking the impact of this rate hike on the economy, prices, and the financial environment.

(Question) In an earlier question, regarding the policy rate now being 0.75% — a level not seen in 30 years — you said there is no special meaning to it, because the price situation and other conditions are different. However, with such abnormal monetary easing continuing for so long, and with downside risks also present, listening to your opening comments today, one can read that you are raising rates with considerable difficulty. Since this is the 30-year milestone, how do you evaluate Abenomics, which involved this abnormal monetary easing — how do you view its significance? And I believe this is the time to break away from Abenomics. Could you tell us how you think about that point?

(Answer) Regarding the relationship with Abenomics, basically — Abenomics, or rather, I believe we have conducted monetary policy in accordance with the joint statement (Note) between the government and the Bank of Japan, and I recognize that we are now entering the final stage of finishing it up. Of course, I think there were side effects as well, and as I always say, there may be some that emerge going forward, but for the time being, what we are aiming for is to bring the final finishing touches to as smooth a landing as possible.

(Question) I fully understand that estimating the neutral rate is difficult because there is a range. Once again, when you look at estimating the neutral rate, what kinds of things are important factors, for example? Has there been any change compared with half a year or one year ago?

(Answer) One thing is — though this may not be much of an answer — it is better to have a lot of data. Furthermore, if I may add, if the economy repeatedly goes above and below the neutral rate many times, the neutral rate becomes easier to estimate more precisely. Unfortunately, looking at the past 20 or 30 years, there have not been many such repeated cycles in the Japanese economy. From another perspective, since the neutral rate is a concept deeply related to the potential growth rate, having a bit more information about the potential growth rate, or deepening our consideration of the relationship between that and the neutral rate, is another possible approach.

(Question) In this decision, there was a phrase saying that real interest rates are at an extremely low level. Which real interest rate does this refer to? Until now, I think there were many cases where you used 1-year and 10-year rates and used expected inflation to subtract. But in your speech on December 1, you used core CPI for subtraction. I would like to ask again which figure this real interest rate refers to. Depending on which one is used, CPI and expected inflation — according to the Bank of Japan's forecasts — differ in direction going forward, so I thought the degree of easing would also differ. I would appreciate it if you could tell us the definition of the real interest rate.

(Answer) When calculating the real interest rate, what to use for expected inflation is a concept that varies depending on the thinking of the person doing the calculation. However, even if one calculates using various expected inflation rates, I think it can be said clearly that from the overnight policy rate out to the 2- to 3-year short-term zone, it is significantly negative.

(Question) I would like to ask about the neutral rate. As the Bank of Japan's estimate, although there is a range, I believe you have presented roughly 1–2.5%. Do you think that although there is a range, it is roughly within this interval? Does that mean that if it reaches 1%, it has not necessarily hit the upper limit, and it does not mean it cannot go to 2.5%? Or, as you have been saying, if you are looking at the economy, prices, and financial conditions, is it possible that you also think, for example, that ending at 0.75% and stopping rate hikes could be neutral?

(Answer) The important point is that this is something that cannot be fully narrowed down by statistical estimation work alone, or rather, that we are in such a situation. Therefore, to repeat, I think we must feel our way forward while watching how the economy responds to interest rate changes.

(Question) I understand that you cannot answer about the current exchange rate, but I would like to ask about the structural factors behind the weak yen. If we count from 2022, when the current inflation began, the yen-dollar rate has weakened by about 40 yen. This greatly exceeds the range of ordinary business-cycle fluctuations, and I think it is an extremely extraordinary magnitude of change. I would like to ask you, Governor, what kind of structural change in the Japanese economy has caused this movement. Has Japanese industry sunk that far, or has the competitiveness of the Japanese economy deteriorated that far?

(Answer) I do not have a specific factor decomposition at hand, and I do not think it would be appropriate for me to comment on that. But one factor is that the interest rate differential between Japan and overseas had a large impact during the period you mentioned. I think it is possible that structural factors such as those you mentioned also had some degree of impact, but as for what those structural factors are, or how much weight they account for overall, I would like to refrain from commenting at this point.

(Question) I apologize for using terminology from more than a year ago, but there was

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