Japanese Banks See Loan Demand Rise Ahead of BOJ Meeting

Major Japanese banks reported stronger corporate demand for funding in a Bank of Japan survey released on October 22, suggesting that recent interest-rate increases have not substantially curbed borrowing. The findings arrive before the central bank's October 29–30 policy meeting, with its benchmark rate at 1.25%.

The Economic Times Markets, citing Reuters and BOJ data, reported that the survey's corporate funding-demand diffusion index rose to +3 from -1 three months earlier. The latest survey ran from September 9 to October 13.

A positive reading means banks reporting stronger demand outnumbered those reporting weaker demand. It measures the balance of bank responses, rather than the percentage growth in corporate loans.

Borrowing holds up after September rate increase

The BOJ raised its policy rate to 1.25% on September 18, taking it to a reported 31-year high as it sharpened its focus on the risk of inflation exceeding its 2% target. The funding-demand survey covered a period both before and after that increase, so it does not isolate the impact of the latest policy move.

The result follows the October 1 quarterly Tankan survey, in which companies describing funding conditions as easy outnumbered those describing them as tight. Together, the reported findings point to continued access to finance despite higher policy rates.

BOJ Deputy Governor Ryozo Himino said on October 21 that financial conditions remained supportive, citing low inflation-adjusted borrowing costs and strong bank-lending growth. The central bank has said it will examine how earlier rate increases affect corporate financing as it assesses proximity to a neutral interest rate—one that neither stimulates nor restrains the economy.

Next hike remains an expectation, not a decision

Analysts cited in the reporting expect another rate increase in December or January. That is a forecast, not an announced BOJ decision.

Shigeto Nagai, head of Japan economics at Oxford Economics, argued that the economy's ability to withstand higher rates could give the BOJ scope to lift them beyond 1.75%. He linked that possibility to limiting further yen depreciation and preventing inflation expectations from becoming less anchored.

The central bank's quarterly outlook report, due after the meeting concludes on October 30, will offer its updated assessment. Its discussion of financing conditions will be closely watched for indications of how much further rates could rise.

Government's tone adds another policy signal

Prime Minister Sanae Takaichi's administration has moderated its criticism of the BOJ's rate increases, according to the reporting. However, pressure on smaller companies from higher financing costs could renew government concerns.

Economy Minister Minoru Kiuchi said on October 20 that he hoped to attend the upcoming meeting as one of the government's two representatives. A summary of opinions from the September meeting showed that a government representative had called for caution over further increases.

Ayako Fujita, chief economist at JPMorgan Securities Japan, said a change in the government representative's tone could indicate whether the administration was moving towards greater respect for BOJ independence. That interpretation remains an economist's assessment; the government's position at the forthcoming meeting has yet to be established.