Against a backdrop of rising interest rates, funds are increasingly shifting from deposits to government bonds, and banks are expected to face pressure to respond to deposit rates and change their funding methods.
The possibility of substantial deposit outflows has been highlighted. Banks are expected to raise deposit rates and take other measures to curb outflows, while potentially shifting their funding toward market-based sources. This could lead to consideration of measures such as raising lending rates and restraining lending and asset holdings. Although expanded sales of government bonds to individuals are expected to increase fee income, some believe the overall impact will be limited. Depending on future sales trends and monetary policy, the effects could extend broadly to financial markets, households, the government and banks.
At the BOJ’s July meeting, it decided to leave the policy rate unchanged and indicated that it would keep the uncollateralized overnight call rate at around 1.0%. In the Outlook for Economic Activity and Prices issued after the meeting, the BOJ said that robust AI-related demand and government measures would support the economy. It slightly raised its real GDP growth forecast for FY2026 and also revised upward its forecast for FY2027. While the inflation outlook includes both downward and upward revisions, the BOJ maintained its forecast that the year-on-year rate for FY2027 would remain above 2%, reflecting the effects of higher crude oil prices and AI-related demand.
Attention is expected to focus going forward on sales trends for government bonds to individuals, the BOJ’s policy operations and interest-rate developments. These factors could affect household fund management and the earnings structures of financial institutions.