Akihiro Fukudome, the new chairman of the Japanese Bankers Association (President of Sumitomo Mitsui Banking Corporation), believes that the Bank of Japan’s monetary policy will remain accommodative for some time. Furthermore, the government predicted that the policy interest rate would only be raised by 0.25% over the next year.
Mr. Fukudome, who assumed the position of chairman on the 1st, made this comment in an interview with Bloomberg. Considering the current domestic economic situation, he also pointed out that Japan’s potential growth rate is not yet strong enough to push the policy interest rate to 0.5%.
Akihiro Fukudome, Chairman of the Japanese Bankers Association
Photographer: Hideki Suzuki/Bloomberg
The Bank of Japan decided to raise interest rates for the first time in 17 years at its monetary policy meeting on March 19th. The negative interest rate on current account deposits held by financial institutions with the Bank of Japan has been lifted, and the target for short-term interest rates (uncollateralized overnight call rates) has been set at 0-0.1%. The interest rate as of March 29th (weighted average, preliminary figure) is 0.074%. If interest rates rise, banks can expect to expand their lending margins.
Mr. Fukudome welcomed the Bank of Japan’s policy change, saying, “It’s a very positive thing for the banking industry.Over the medium to long term, we can make investments with good yields, and interest margins are improving.” The three megabanks estimate that if the policy interest rate is 0%, the effect of pushing up annual net interest income will be around 35 billion to 45 billion yen, but depending on interest rate trends, the increase may be even higher.
Many banks use the short-term prime rate (short-term rate), which is linked to the policy interest rate, as the standard for home loan interest rates, and this causes a rise in contract interest rates, especially for variable rate loans. However, Fukudome said, “The impact is extremely limited.” This is because, given the current level of short-term interest rates and past changes in short-term interest rates, it is unlikely that major banks will raise short-term interest rates any time soon.
US-China risk
Regarding the world economic and political situation, Fukudome said, “The biggest risk to the U.S. economy is a resurgence of inflation.” If former President Trump were to win the U.S. presidential election and carry out his policies on tariffs and immigration, it would cause inflation in the U.S., adding, “Personally, the worst-case scenario is that U.S. long-term interest rates would rise.” said.
However, there are concerns that the policy interest rate hikes in Japan and the US are currently moving in opposite directions. The US is expected to cut interest rates, and Japan is raising interest rates. He emphasized that he had never seen such a composition before. “Depending on the timing, this can create volatility in the market,” such as the rapid narrowing of interest rate differentials. “This is a big risk factor for foreign exchange rates and stocks.”
On the other hand, regarding the slowing Chinese economy, he said, “This is not just a real estate recession.” In addition to having a negative impact on Japanese companies operating in the country, it is analyzed that if cheap steel and chemical products are exported to Japan from China, it could weaken domestic manufacturers.
2024-03-31 15:00:00
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