Japan funding conditions still loose despite interest rate hikes, survey shows

Major Japanese lenders reported increased demand for funds among corporate borrowers compared to three months ago, according to a survey released on Thursday. This indicates that the recent interest rate hikes by the Bank of Japan have not yet tightened financial conditions. The timing of the next rate hike by the central bank is becoming increasingly important for predicting financial conditions.

The Bank of Japan has stated it will closely examine how past rate increases impact corporate funding to determine how close its rate is to a level deemed neutral to the economy. A survey conducted by the BOJ between September 9 and October 13 found a diffusion index of +3, compared to -1 in a survey three months earlier. A positive reading suggests more banks saw corporate fund demand rise compared to those that saw demand fall.

The Bank of Japan raised its policy interest rate to a 31-year high of 1.25% on September 18 and signaled a shift towards a policy aimed at preventing the risk of inflation overshooting its 2% target.