The Bank of Japan’s policy rate is unlikely to rise above 2% because that level would probably push monetary policy into restrictive territory, Capital Economics’ Marcel Thieliant said in a note. After the BOJ raised rates to 1.25%, Thieliant said the central bank could tighten faster than expected in coming months. Capital Economics projects a 2% policy rate as soon as mid-2027, a more aggressive forecast than financial markets currently price. However, risks are tilted toward a lower peak because Japan’s planned sales tax cut in April could bring inflation down to very low levels.