By Anton Bridge and Miho Uranaka
TOKYO (Reuters) -The Bank of Japan may hike interest rates as early as October, as trade-related uncertainty has started to recede and domestic inflationary pressure is relatively high, the CEO of Mitsubishi UFJ Financial Group (MUFG) told Reuters.
The comments from the head of Japan’s biggest lender may add to expectations that the central bank is preparing to hike rates after it sharply upgraded its inflation forecasts for the current financial year. It held interest rates at 0.5% at its monetary policy meeting last week.
“Personally, I think there’s a possibility a hike will happen in October,” said Hironori Kamezawa in an interview with Reuters on July 31, the morning of the day of the policy meeting, in remarks embargoed to coincide with MUFG’s first-quarter results.
The banking group, Japan’s largest by assets, has factored in the likelihood of higher interest rates in adjusting its holdings of Japanese government bonds.
“In terms of our position, we don’t need to do anything right now,” Kamezawa added. “The question is at which point we start buying. It’s highly likely that we’ll hold off on buying for now.”
MUFG’s official position is that with downward pressure on the Japanese economy – for instance through tariffs – set to continue it would be difficult for the BoJ to raise rates until around March 2026.
But even though 15% tariffs with the U.S. may lower Japan’s gross domestic product by around 0.5%, this would not be enough to disrupt Japan’s overall economic recovery and inflationary pressures persist, Kamezawa said.
“In July there were five times as many food products that had seen price rises compared to the figures for last year. In this sense real inflation is progressing a little,” Kamezawa said.
JGB yields had jumped in the run-up to last month’s upper house election, as surging support for opposition parties was seen as pressuring the government into more expansionary fiscal policies, such as through a consumption tax cut.
However this is now factored into bond market expectations, Kamezawa said.
“Even if Japan were put on negative watch by the ratings agencies, I don’t think we’ll see a immediate sell-off.”
(Reporting by Anton Bridge and Miho Uranaka; Editing by David Holmes)
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