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

• The BOJ's June 15-16 meeting is expected to deliver a rate hike, with markets already pricing in nearly two rate hikes this year and potential further tightening beyond
• SMFG proposes the BOJ halt further bond purchase tapering and maintain monthly purchases at around 2.1 trillion yen ($13.15 billion) from April 2027 to stabilize markets
• The bank would consider buying long-term bonds if yields reach around 3%, but will assess overall market supply-demand conditions before making investment decisions

Summary

Key Development: Sumitomo Mitsui Financial Group's (SMFG) global markets chief Arihiro Nagata urged the Bank of Japan (BOJ) to provide clear policy guidance following an anticipated interest rate hike at its June 15-16 meeting.

Market Context: Japan's 10-year government bond yield has reached 30-year highs, while the yen has weakened toward the critical 160-per-dollar level despite substantial intervention efforts. Markets currently price in nearly two rate hikes for the year with potential further tightening ahead.

Main Request: Nagata emphasized that clearer communication on the normalization path would help stabilize the bond market and potentially limit further increases in long-term interest rates. He suggested the BOJ could simply signal alignment with existing market expectations rather than provide detailed forward guidance.

Bond Taper Plan: At the June meeting, the BOJ will review its current bond taper plan and establish a new framework for fiscal year 2027. SMFG recommends the central bank halt further tapering and maintain monthly bond purchases at approximately 2.1 trillion yen ($13.15 billion) from April next year, describing this level as "manageable without causing market stress."

Economic Backdrop: The Middle East conflict has complicated BOJ policy decisions by driving higher energy costs that simultaneously boost inflation and pressure Japan's import-dependent economy. The BOJ held rates steady in April but signaled a likely near-term hike due to mounting inflationary pressures.

Investment Strategy: SMFG indicated willingness to purchase long-term bonds if yields approach 3%, though decisions will depend on overall market supply-demand conditions.