As the Bank of Japan accelerates the pace of rate hikes, more financial institutions are seeing their lending-rate revisions fall behind the curve. The pass-through of funding costs is progressing, making it necessary to secure customers' understanding and set appropriate interest rates.
Financial institutions are being tested on their ability to keep earnings in line with the Bank of Japan's faster pace of rate hikes by revising short-term prime rates and other rates. With further Bank of Japan rate hikes in view, some institutions have begun deciding on the next policy rate increase before revising their lending rates, and the shorter intervals between rate hikes are creating differences in timing.
At its September meeting, the Bank of Japan signalled that it could raise rates again at three-month intervals, and the governor stressed at his press conference that conditions had changed. The Bank was said to have signalled an acceleration in the pace of rate hikes, with the goal of achieving its price stability target amid inflation in mind.
The pass-through of higher funding costs associated with rate hikes to lending rates has become important, requiring the ability to explain the changes and secure customers' understanding, as well as interest-rate setting based on an assessment of profitability. The application of these changes is said to be progressing particularly among regional financial institutions with large portfolios of short-term prime rate-linked loans.