Mizuho CEO Floats Idea of First Outsized BOJ Hike Since 1990

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(Bloomberg) — Mizuho Financial Group Inc.’s chief executive officer suggested that the Bank of Japan might be better off considering an outsized interest-rate increase to combat inflation — a move the central bank hasn’t undertaken since the country’s asset bubble in 1990.  

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Masahiro Kihara expects the BOJ to raise rates in June or July, he said in a Bloomberg Television interview on Wednesday. Whether they do or not is unlikely to have a big impact on the market unless the increase is large, he said. 

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“If they move boldly” with a 50 basis-point hike, “that would be better for the bond market maybe,” he said. Asked whether the central bank is behind the curve, Kihara said it was a “tricky question. A little bit I think.” 

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BOJ watchers have been debating whether the central bank is becoming slow to respond to mounting inflationary pressures. Japanese government bond yields have surged in recent weeks on concerns about rising prices stemming from the war in Iran, along with questions over fiscal policy. 

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The BOJ has been gradually raising interest rates since it ended its extraordinary monetary easing policy in March 2024. Investors are expecting Governor Kazuo Ueda’s policy board to increase the key rate by 25 basis points as soon as June.  

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The last time the central bank raised rates by more than that was in August 1990, when it hiked by 75 basis points to 6% to curb surging prices of assets including real estate. When the bubble burst, it ushered in decades of deflation and economic stagnation. 

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A jumbo rate hike would be a big surprise to economists. But at the BOJ policy board’s meeting in March, one member suggested they should consider the size of any hikes, implying the possible need to raise rates at a faster pace, minutes show. 

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Kihara said the government is right not to issue more bonds to fund a supplementary budget aimed at alleviating households’ costs tied to the energy crisis. 

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Prime Minister Sanae Takaichi said the government will finance its extra budget without increasing bond issuance on a calendar basis, in a likely attempt to ease market concerns over public finances.

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Kihara said the Japanese stock market may be “a little bit overpriced” given the events in the Middle East, although he expects companies to continue to take actions to improve returns. 

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Japan’s benchmark Topix index of shares touched a fresh record on Wednesday morning. The gauge is up more than 15% this year. 

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Mizuho’s clients, especially refineries and chemical manufacturers, are still managing to obtain supplies despite the Middle East situation, Kihara said, adding that concerns are more to do with rising prices and their impact on earnings. The bank expects the conflict to be resolved by August and business to return to normal in the ensuing months. 

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Mizuho earlier this month forecast another year of record earnings, as higher rates boost lending profitability. Shares of Mizuho are up 27% this year, and have surged more than 400% since the end of 2020.