Mizuho CEO advocates for bold Bank of Japan rate hike to boost bond market

Japan’s third-largest financial group is telling its central bank to rip off the bandage. Mizuho Financial Group CEO Masahiro Kihara is publicly advocating for the Bank of Japan to raise its terminal policy rate to at least 1.5% by early 2026, a level that would have seemed unthinkable just a few years ago in a country synonymous with near-zero interest rates.

The push comes as the BOJ already hiked its policy rate to roughly 0.75% in December 2025, the highest level in three decades. Kihara’s argument: a more aggressive rate increase would actually benefit the Japanese Government Bond market, not hurt it, by restoring a more functional pricing environment.

The case for speed over caution

Economists broadly expect the BOJ to raise rates to 1.0% by June 2026, following the December 2025 hike. But Kihara is signaling that even that pace may not be ambitious enough.

Mizuho’s markets co-head, Kenya Koshimizu, has separately called for the BOJ to accelerate its tapering of bond purchases alongside rate hikes. The logic is that reducing the central bank’s dominant presence in the JGB market would improve liquidity and allow bonds to trade at prices that actually reflect supply and demand, rather than central bank intervention.

Why a bank CEO wants higher rates

Higher interest rates are, generally speaking, great for banks. They widen the spread between what banks pay depositors and what they earn on loans. For a megabank like Mizuho, even modest rate increases translate into meaningfully higher net interest income.

Mizuho’s own positioning reflects this conviction. The bank’s average JGB holding duration sits at about 1.8 years as of late 2025, deliberately short. That’s a hedge: short-duration bonds are less sensitive to rising rates, meaning Mizuho takes less of a hit on its existing portfolio as rates climb. Once rates stabilize at higher levels, the bank can pivot toward longer-duration assets that offer better yields.

What this means for investors

For decades, Japan’s ultra-low rates made the yen a favorite funding currency for carry trades, where investors borrow cheaply in yen and invest in higher-yielding assets elsewhere. Higher Japanese rates narrow that differential, potentially unwinding carry trades and strengthening the yen.

A stronger yen, in turn, can ripple through global markets. Japanese institutional investors, among the world’s largest holders of foreign bonds, might repatriate capital if domestic yields become attractive enough. That could put pressure on US Treasuries, European sovereign debt, and other assets that have benefited from Japanese capital outflows.

Rising rates push existing bond prices lower, and JGB holders with long-duration exposure could face meaningful mark-to-market losses. Mizuho’s own short-duration strategy is instructive here: the bank is clearly prioritizing capital preservation over yield during the transition.

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