TOKYO- After decades of deflation, Japan’s economy looks poised to finally turn a corner. For its biggest banks, however, there’s a hitch: a generation of professional front-line staff have little experience with rising interest rates.
Lenders in the world’s third-largest economy are now giving crash courses to younger staff to help clients navigate higher interest rates as many of these employees have no expertise in dealing with the vagaries of a traditional inflation environment.
The historic shift to an inflationary environment from decades of falling prices that stretch back to the 1990s presents something of a wake-up call for Japan’s major banks, senior bankers say in private, warning that lenders need to change the mindset of their staff or risk losing out on opportunities.
The last time Japan ended zero interest rates was in 2006, “so for most of our front-line bankers this is the first time to deal with clients amid rising rates,” Masahiro Minami, CEO of No. 4 lender Resona Holdings told Reuters in an interview.
“We’ll need to carefully watch how our clients would change their behavior at what speed, and we need to be prepared to respond to those changes,” he said.
Hopes that banks will benefit big from an end to deflation have sent the Tokyo banking index to its highest in 15 years this year.
The industry has long moaned quietly that the central bank’s massive stimulus crimped their earnings. Shackled by zero rates at home for years, big banks have expanded overseas lending and investment in complex financial products in their hunt for yields.
While it remains to be seen whether banks will be ready to capitalize on higher rates, they’ve been preparing for them by tapping the expertise of veteran money market specialists like Izuru Kato.
Kato, who heads the think-tank arm of major money market brokerage Tokyo Tanshi, has been called upon frequently by various banks, sometimes multiple times a week, to talk how short-term money market was before the Bank of Japan’s monetary easing steps and how it would be when these steps are removed.
