Sumitomo Mitsui Financial Group\u2019s (SMFG) global markets chief, Arihiro Nagata, has called on the Bank of Japan (BOJ) to establish a clear policy normalisation trajectory following an anticipated interest rate hike this month. This guidance is deemed crucial to stabilise the nation\u2019s bond market. Sumitomo Mitsui Financial Group (SMFG) is Japan\u2019s second-largest banking group. It provides a broad spectrum of financial services across various sectors. The plea from SMFG comes as Japan\u2019s 10-year government bond yield has reached three-decade highs, while the yen has depreciated towards the significant 160-per-dollar mark, despite previous market interventions.<\/p>\n
Mr Nagata expressed his expectation for a BOJ rate increase in June, stating, \u201cThe BOJ should raise interest rates in June, and I expect it will \u2013 surely this time.\u201d He highlighted that the core focus of the BOJ\u2019s June 15-16 meeting would be the clarity of its signalled path towards policy normalisation. According to Nagata, a more explicit outline of this path would likely diminish the scope for further rises in long-term interest rates. He added that the BOJ merely needs to indicate alignment with market expectations, which already factor in nearly two rate hikes this year and some additional tightening beyond.<\/p>\n
While the BOJ maintained interest rates in April, it strongly hinted at a near-term hike, driven by escalating inflationary pressures. The upcoming June meeting will also see the BOJ review its bond tapering plan, currently set to run until March next year, and formulate a new strategy for fiscal 2027. Markets are closely watching whether the central bank will continue reducing monthly bond purchases in fiscal 2027 or maintain the current pace. Mr Nagata\u2019s bank has proposed that the BOJ halt further tapering and keep monthly purchases at approximately 2.1 trillion yen ($13.15 billion) from April next year, suggesting this level would be manageable without market stress and allow for improved market functioning. SMFG itself would consider buying long-term bonds if yields reached around 3%, though investment decisions will depend on overall market supply-demand conditions.<\/p>\n
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