Japan funding conditions still loose despite interest rate hikes

TOKYO: Major Japanese lenders see increased demand for funds among corporate borrowers compared with three months ago, a survey showed on Thursday, indicating the central bank's recent interest rate hikes have yet to tighten financial conditions.

Financial conditions are becoming increasingly important in predicting the timing of the Bank of Japan's next rate hike. The bank has said it will scrutinise how past increases affect corporate funding to assess how close its rate is from a level it deems neutral to the economy.

In a survey, that the BOJ conducted over September 9 through October 13, a diffusion index measuring the ratio of major banks that saw corporate fund demand rise versus those seeing demand shrink stood at +3, compared with -1 in a survey three months earlier.

A positive reading indicates more banks saw corporate fund demand increase compared with those that saw demand fall.

The BOJ raised its policy interest rate to a 31-year high of 1.25 per cent on September 18 and signalled a pivot towards a policy focusing on forestalling risk of inflation overshooting its 2.0 per cent target.