The Bank of Japan (BOJ) may raise interest rates twice by the end of March 2025, to reach 0.5%, reflecting the real growth rate of the Japanese economy, the head of the banking arm of Mizuho Financial Group said.
But a rapid rate hike will not be enough to halt the weakening of the yen, which has fallen to a 38-year low against the dollar, Masahiko Kato, chief executive of Mizuho Bank, told Reuters in an interview.
“If (the BOJ) raises rates too much, the economic growth that has finally taken hold will deteriorate,” Kato said. “I don’t have the impression that they will raise interest rates too hastily.”
The central bank ended negative interest rates after eight years in March, and economists are divided over whether it will raise rates again at its next policy meeting later this month.
As inflation translates into higher costs for companies that need to raise wages, this in turn pushes them to adopt new growth strategies such as mergers and acquisitions (M&A), carve-outs and overseas expansion to boost earnings, Kato said.
Mizuho Bank has identified mid-cap listed companies as a new customer base for its financing and advisory services, as Japan’s acute labor shortage means many of these firms lack the specialized know-how to pursue growth, such as through mergers and acquisitions.
The fact that many companies struggle to increase their corporate value after listing is behind the growing involvement of activist investors in Japanese companies, as well as the Tokyo Stock Exchange’s campaign to increase corporate value, Kato said.
Mizuho created a seven-person mid-cap growth support team last year, which expanded into a 70-person standalone department in April.
“Until now, companies have been allowed to have no clear idea of the increase in enterprise value,” Kato said.
“But with the reforms of the Tokyo Stock Exchange and now that the economy has started moving again, suddenly the conditions are there.”
