Bank of Japan rate hikes and yen weakness strain Japanese firms

Japan’s Finance Minister Satsuki Katayama said that a rise in the economy’s growth potential could lead to a review of the Government Pension Investment Fund’s asset mix, while stressing that the government cannot force pension funds to increase domestic holdings.

Former BOJ board member Seiji Adachi warned that if the 10‑year Japanese government bond yield moves above the 3 % threshold, “it would cast doubt on Japan’s fiscal sustainability,” and the BOJ could face political pressure to ramp up bond‑buying. The central bank has already lifted its short‑term policy rate to a 31‑year high of 1 % and may raise it further to 1.25 % by year‑end.

A Reuters poll of 511 companies found nearly half reporting negative effects from the BOJ’s tightening, with higher borrowing costs hurting earnings and deterring capital investment. More than half of respondents said the weakening yen – now around ¥162 per dollar, a 40‑year low – is a greater earnings concern than the rate hikes, as import costs rise while export benefits are limited. The government intervened with a record ¥11.7 trillion to support the currency, but the effect was short‑lived.