A Japanese flag flies outside the Bank of Japan headquarters, in Tokyo, on June 13.YUICHI YAMAZAKI/Getty Images
The Bank of Japan will exercise caution on raising interest rates, Japan’s banking lobby chairman said on Thursday, the day before the central bank releases the outcome of its latest monetary policy meeting.
“The BOJ will raise rates extremely gradually while ascertaining the effect on the market,” Akihiro Fukutome, head of the Japan Bankers Association, told a press briefing in Tokyo.
Sources have told Reuters that the BOJ may offer guidance on its plans to reduce its balance sheet, which currently stands at almost $5-trillion, at Friday’s policy meeting, but Fukutome did not comment on the timing of any reduction.
The BOJ ended negative interest rates and bond yield curve control in March and governor Kazuo Ueda has said it will eventually reduce bond purchases, but has not said when.
Under ultralow interest rates Japanese banks sought sources of overseas income, but with rising interest rates at home the relative importance of their domestic businesses will increase, Fukutome said.
The Japanese economy is moving into a positive cycle of growth which will see increased lending to fund digitalization and green initiatives alongside mergers and acquisitions and business carve-outs, Fukutome said.
At last month’s earnings results, Japan’s three largest banks forecast record income in the coming year.
Fukutome, who is chief executive of the core banking unit of Sumitomo Mitsui Financial Group, Japan’s second largest banking group, said that the results were yet to reflect the end of negative rates.