Japanese bank lending grows at fastest pace since the pandemic, supporting the Bank of Japan’s rate hike path

Golden Ten Data July 8 – The Bank of Japan's loan growth in June reached the fastest pace since the onset of the COVID-19 pandemic, indicating that credit channels remain open and the Bank of Japan still has room to continue raising interest rates. According to a report released by the Bank of Japan on Wednesday, seasonally adjusted bank loans excluding trusts increased by 6.3% year-on-year in June, marking the strongest growth since August 2020. The central bank stated that the growth was mainly driven by loans related to mergers and acquisitions, real estate, and economic recovery. These data reinforce the Bank of Japan’s assessment that financial conditions remain accommodative, even after Governor Kazuo Ueda raised the benchmark interest rate last month to its highest level since 1995. Although the latest loan data may not yet reflect the impact of the June rate hike, policymakers have repeatedly cited financial conditions as a key indicator for assessing whether further rate hikes are warranted. Strong loan demand indicates that higher borrowing costs have not dampened corporate investment or household activity, strengthening the argument that the economy can withstand further policy normalization. This is in line with the Bank of Japan’s latest Tankan survey, in which the corporate financial conditions index improved for the first time in a year. Large companies reported an improved environment for issuing commercial paper.