The Bank of Japan is likely to raise interest rates again this year and see borrowing costs reach levels deemed neutral to the economy by the end of 2027, a senior International Monetary Fund official said on Thursday.

The Bank of Japan will continue to raise interest rates if underlying inflation accelerates toward its 2 per cent target as projected, a senior central bank official said on Wednesday."Underlying inflation is heading toward 2 per cent but still remains below that level now.

In a speech to business leaders, Naoki Tamura said that the central bank should raise rates to 1% or higher in the fiscal half starting in October.

The Bank of Japan must raise short-term interest rates to at least 1% by the second half of fiscal 2025 to contain inflation risks, board member Naoki Tamura said on Thursday.