The Bank of Japan (BOJ) may still be poised to increase interest rates by the end of the year, despite recent market fluctuations not having a lasting effect, according to Tomoko Amaya, a former senior official at Japan’s financial regulatory body. Speaking at the Bund Summit in Shanghai over the weekend, Amaya expressed confidence in the stability of the market.
“While the market has faced some turbulence over the past couple of months, I don’t believe there has been a significant loss of confidence,” Amaya stated. She emphasized that the key factor is not the current level of equity prices or market turbulence but rather the overall confidence in the financial system. She believes that the stability achieved so far supports the possibility of a rate hike this year, which would benefit banks.
In the wake of last month’s market volatility, BOJ Deputy Governor Shinichi Uchida had indicated that the central bank would refrain from increasing rates during periods of market instability. Governor Kazuo Ueda has since echoed this position but has also noted that the BOJ remains committed to adjusting rates if economic and inflation data align with the central bank’s projections.
Amaya, who previously served as a senior official at Japan’s Financial Services Agency (FSA) and was the first woman to become vice minister for international affairs in 2021, now holds a position as an executive adviser at the Norinchukin Research Institute. Her perspective reflects her extensive experience in overseeing Japan’s financial institutions and maintaining system stability.
Most analysts expect the BOJ to raise rates by January, assuming there is no return to the market instability experienced in early August. Should the BOJ proceed with a rate hike, Amaya believes Japanese banks would see an improvement in their profit margins. However, she cautions that the rate of increase is more critical than the rate level itself.
“Many banks are adapting their strategies and portfolios to manage the impact of potential rate hikes,” Amaya noted. “There remains some capacity for rate increases, and banks could benefit from the higher interest rates.”
