SMFG CEO sees Bank of Japan raising rates twice by next summer

what happened

SMFG CEO Nakashima told Reuters that, in his personal view, there is a high chance the Bank of Japan will raise its policy rate twice, to 1.75%, by next summer. He also warned that Japanese firms are vulnerable to any slowdown in investment in AI data centres.

Nakashima said the bank has tightened its standards this year for extending credit to data centre projects, limiting financing mainly to hyperscalers with strong credit ratings.

On Nvidia, he said the effect of its CEO stepping down on data centre investment is hard to gauge for now and depends on the new leadership. Personally, he does not think the company's stance will change much.

why it matters

Expectations of further Bank of Japan hikes support the yen and could weigh on carry trades, in which investors borrow in yen to buy assets in other currencies. Higher rates usually widen net interest margins for Japanese banks. At the same time, the risk of slower AI capital spending remains an open question for Japanese technology firms and lenders to data centre projects.

market impact

Yen and Japanese banks: expected BoJ hikes support the currency and the sector

• ▲Yen pressure up — expected higher Bank of Japan rates make the currency more attractive
• ▲Japanese bank stocks pressure up — higher rates usually widen banks' net interest margins

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