TOKYO, Feb 19 (Reuters): An expected rise in Japan's short-term interest rate to 1 per cent may trigger a significant reallocation of cash into deposits that could complicate the Bank of Japan's monetary policy implementation, a leading economist told Reuters on Thursday.
The Bank of Japan exited a decade-long, massive stimulus in 2024 and raised the interest rate several times through December, when it hit a 30-year high of 0.75 per cent. Markets are pricing in the chance of another hike to 1.0 per cent as soon as in March or April.
Ikuko Samikawa, lead economist at think-tank Japan Center for Economic Research, said that as Japan emerges from a prolonged zero-rate environment, it could experience huge fund shifts as households move cash into interest-bearing bank accounts.
Historically, when the BOJ's policy rate has exceeded 0.5 per cent, households have shifted cash into bank deposits, said Samikawa, a member of a finance ministry panel and frequent participant in BOJ forums.
An increase in bank deposits would lead to a higher overall balance that financial institutions hold with the BOJ, putting downward pressure on money market rates.
"The next anticipated rate hike to 1 per cent could be a trigger point of such inflows... If the flow of funds back to bank accounts turns out to be big, it could complicate the BOJ's effort to guide short-term interest rates around its target," Samikawa said.
A prolonged era of heavy money printing has made it very hard to predict how funds could move as interest rates rise, she added.
The BOJ is shrinking its balance sheet after it ballooned five-fold in the past two decades to around 756 trillion yen ($4.88 trillion) due largely to the stimulus deployed in 2013.
Japan may see upheaval of funds when BOJ hikes rates to 1pc, economist says
FE Team | Published: February 19, 2026 23:43:47
Japan may see upheaval of funds when BOJ hikes rates to 1pc, economist says
Share if you like