BOJ should hike in June and signal clear rate path, SMFG markets chief says

MFG global markets chief Nagata said the BOJ should hike in June and lay out a clear normalisation path to stabilise bonds, as 10-year yields hit 30-year highs and the yen nears 160. Summary:
Source: Arihiro Nagata, global markets chief, Sumitomo Mitsui Financial Group, via Reuters interviewSMFG’s Nagata called for a BOJ rate hike in June, describing it as certain, and said the key issue at the June 15-16 meeting is how clearly the bank signals its path toward policy normalisationNagata argued that a clearer forward path would reduce upward pressure on long-term yields, noting it would be sufficient for the BOJ to simply confirm it sees little gap with existing market pricingJapan’s 10-year government bond yield has risen to 30-year highs; the yen has weakened back toward 160 per dollar despite large-scale interventionThe Middle East conflict has complicated BOJ timing, with higher energy costs simultaneously lifting inflation and weighing on Japan’s import-dependent economySMFG has proposed the BOJ halt further bond purchase tapering and hold monthly purchases at around 2.1 trillion yen from April 2027; Nagata said that level would be manageable without market stress while allowing market functioning to recoverSMFG said it would be willing to buy long-term bonds if yields reach around 3%, subject to overall supply and demand conditionsThe Bank of Japan should raise interest rates at its June meeting and follow the move with a clearly articulated path toward policy normalisation, according to the global markets chief of Sumitomo Mitsui Financial Group, Japan’s second-largest banking group by assets.Arihiro Nagata, speaking to Reuters, said a June hike was not only warranted but expected with confidence, describing it as certain. He framed the rate decision itself as the lesser issue, however, arguing that the more consequential question at the June 15-16 meeting is how explicitly the BOJ communicates what comes next. A clear forward path, Nagata said, would do more to contain upward pressure on long-term yields than the hike alone, because it would reduce uncertainty about the pace and endpoint of tightening.The context for that argument is stark. Japan’s 10-year government bond yield has climbed to its highest level in three decades, while the yen has drifted back toward the psychologically significant 160 per dollar mark despite the record-scale intervention deployed by the Ministry of Finance in recent weeks. The combination suggests that market confidence in Japan’s policy framework, rather than the level of any individual instrument, is the core problem.Nagata said it would be sufficient for the BOJ to signal that it sees little divergence between its own expectations and what markets are already pricing, which includes nearly two rate hikes this year and further tightening beyond. That alignment, made explicit, could anchor long-end yields without requiring further aggressive action.On bond purchases, Nagata said SMFG has formally proposed that the BOJ halt further tapering and hold monthly JGB purchases at around 2.1 trillion yen from April 2027, a level he described as manageable without causing market stress while still allowing normal market functioning to recover. The BOJ will review its existing taper plan at the June meeting and set out a new framework for fiscal 2027, with markets watching closely for any signal on whether the current pace of reduction continues.—Ten-year Japanese government bond yields at 30-year highs and the yen pressing back toward 160 per dollar frame the urgency behind the SMFG call. A June hike is widely priced, but the bond market’s behaviour suggests forward guidance is now the more critical variable: without a credible normalisation path, long yields may continue to rise regardless of what the policy rate does. SMFG’s proposal to halt further bond purchase tapering at 2.1 trillion yen a month from April 2027 is a significant ask, effectively putting a floor under BOJ support for the JGB market at a moment when fiscal concerns are already elevated. The bank’s stated willingness to buy long-term bonds at around 3% yields provides a private sector backstop signal that markets will note.
This article was written by Eamonn Sheridan at investinglive.com.

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