(Bloomberg) -- Top executives of Japan’s biggest banks and brokerages predicted further gains in domestic share prices and more interest-rate hikes, as they welcomed a new prime minister who started his career in the financial sector.
Toru Nakashima, the chief executive officer of Sumitomo Mitsui Financial Group Inc., said he expects the Bank of Japan to raise interest rates to 1%, while his counterpart at Mitsubishi UFJ Financial Group Inc., Hironori Kamezawa, said the rate is likely to rise to at least that level, from 0.25%.
Nomura Holdings Inc.’s CEO Kentaro Okuda said the Nikkei 225 Stock Average may rise above 40,000 by the end of the year, a prediction he shared with Masahiro Kihara, CEO of Mizuho Financial Group Inc. That would be a 6% gain from current levels. The executives spoke at a Nikkei financial forum in Tokyo.
They gathered a day after Shigeru Ishiba became Japan’s new prime minister. In the run-up to his election, uncertainties over the next administration’s stance on monetary policy caused sharp swings in stocks, bonds and the yen. Ishiba said on Wednesday that Japan’s economy isn’t in a condition now for the BOJ to raise interest rates again, triggering a weakening in the yen against the dollar.
Domestic banks will get an earning boost if the BOJ pushes up rates further, allowing them to charge more on a variety of lending from corporate loans to mortgages.
Ishiba’s first job was at Mitsui Bank Ltd., where he worked for almost four years before he was elected as member of parliament in the 1980’s, according to his website. Mitsui Bank became part of SMFG after a series of mergers starting in the 1990’s as policymakers pushed for consolidation in a crowded banking sector weighed down by bad debt.
“We are happy about his becoming prime minister,” said SMFG’s Nakashima. “From his comments, I think he is supportive of BOJ’s policy normalization, so I think the BOJ can keep raising rates.”
As Japan’s central bank pushes up interest rates, the US Federal Reserve will likely cut rates toward 3% to support economic growth, said Nakashima. That would narrow the yield gap between the two countries, putting upward pressure on the yen as returns on US assets become less appealing. But with structural factors such as Japan’s trade deficit dragging on the yen, the currency likely won’t gain much and will be around mid-130s per dollar in a year, he said. It was about 144 Wednesday in Tokyo.
A potential sharp strengthening in the yen is a concern for Akihiko Ogino, the CEO of Daiwa Securities Group Inc. Daiwa’s research arm is expecting Japan’s corporate sector to post record profits this fiscal year and next though, and he’s bullish on the nation’s shares in the medium term.
Japanese shares have retreated since reaching record highs in July, with the Nikkei down about 10% from that month’s peak. The yen has rebounded sharply during that period, after plunging to the lowest in nearly 38 years in July, as the BOJ raised interest rates for a second time after ending its radical negative interest rate policy in March.
Policy Requests
Some of the executives had policy requests for the new administration. Mizuho’s Kihara hopes that Ishiba will work on developing regional economies and the nation’s energy policy, while addressing issues like Japan’s fiscal deficit. Kihara also wants the government to work on encouraging startups, including measures to attract more overseas venture-capital money.
Nomura’s Okuda called on the Ishiba administration to push ahead with policy steps to overcome deflation as well as spur a shift from savings into investing. He also asked the new leader to carry on with previous Prime Minister Fumio Kishida’s push to strengthen Japan’s asset management industry.
“Japan has made progress toward a full exit from a deflationary economy” as shown by “strong wage growth” after labor-management pay negotiations in the spring, Okuda said.
(Adds more comments from CEOs)
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