TOKYO - The Bank of Japan should lay out a clear path for policy normalization after a widely expected rate hike this month to stabilize the bond market, according to Sumitomo Mitsui Financial Group's global markets chief, Arihiro Nagata.
Nagata said the BOJ should raise rates at its June 15-16 meeting, adding that the key point is how clearly it signals the path toward normalization. He argued that a clearer roadmap would diminish room for further increases in long-term interest rates.
He suggested it would be sufficient for the BOJ to simply signal little discrepancy with market expectations, which already price in nearly two rate hikes this year.
The BOJ kept rates steady in April but signaled a near-term hike due to mounting inflationary pressures. The Middle East conflict has complicated the decision, as higher energy costs lift inflation but weigh on Japan's import-dependent economy.
At its June meeting, the BOJ will review its bond taper plan. Nagata's bank has proposed halting further tapering and keeping monthly purchases at around 2.1 trillion yen from April next year to avoid market stress.
Regarding portfolio management, Nagata said SMFG would be willing to buy long-term bonds if yields reach around 3 percent, but investment decisions will be made carefully.