Signal — Markets

Japan’s cheap money is over. Your intercompany rates have not noticed

The BoJ looks set to move to 1.25 per cent on 18 September. Your existing fixed-rate loans are fine. Your next renewal is not.

What moved

Core-core inflation — excluding fresh food and energy — rose to 1.9 per cent in July, accelerating for the first time in nine months. The 10-year JGB touched 2.93 per cent on 17 August, its highest since 1996. The yen sits near ¥159, having surrendered half the ground won by July’s $85bn joint US–Japan intervention. Policy went to 1 per cent in June; the market prices a 70 per cent chance of 1.25 per cent on 18 September. Only second-quarter growth of 1.1 per cent argues against.

Why it matters for pricing

The policy rate does not price your loan. The curve does. Five-year JGB yields now sit above 2 per cent against roughly zero in 2021 — a 200 basis point move in the base leg of every JPY price in your group, made without anyone deciding anything.

Be precise about what that touches. A fixed-rate loan priced at arm’s length in 2021 was tested against the 2021 market and stays arm’s length for its term. Rate movement afterwards is the risk both parties took on. Nothing needs restating.

The exposure is elsewhere: facilities that mature and get rolled, floating-rate arrangements where the base leg has already moved, and amendments substantial enough to be new transactions.

The roll-forward is where groups get caught. For twenty years, renewing a JPY facility at last year’s rate was safe, because last year’s rate was still this year’s rate. It no longer is. A renewal is a new transaction, priced against the market on the day it is made. Use the old number in 2026 and you are 150 to 250 basis points out — shifting income out of Japan, or understating deductions into it.

There is a second effect, and it reaches further. At a zero risk-free rate credit quality barely registers: strong and weak borrowers compress into a few dozen basis points, and a thin credit analysis survives an audit. At 2 to 3 per cent, dispersion reopens. The gap between a BBB and a B borrower in JPY is a real number again, and credit work that was never load-bearing now is.

Our call. JPY rates up 150 to 250 basis points on the base leg alone, with credit spreads widening on top. Anyone rolling, refinancing or originating JPY intragroup debt this half should expect a benchmark they do not recognise.

Benchmark note — check which yield you are using. In early August the 15-year JGB yielded around 4.2 per cent — above the 20, 30 and 40-year. That kink says nothing about fifteen-year risk. Japanese benchmarks are quoted on simple yield, not yield to maturity, and the current 15-year is a low-coupon bond well below par — exactly where the two diverge. On a YTM basis it was nearer 3.4 per cent and the curve is straight. Pull a risk-free rate off a generic JGB screen between ten and twenty years and you may be 75 basis points high — systematically, in one direction, into everything built on top of it. Guarantee fees suffer most: the benefit is a differential, so the error does not offset.

What this means for your business

  • Inventory JPY intercompany debt by maturity, not by rate. Every maturity in the next eighteen months is a pricing event.
  • Check your floating-rate facilities actually float. Many are floating on paper and fixed in practice — the base leg has moved on its own, and the margin has never been tested against it.
  • Check the credit rate on JPY cash pool balances. Still near zero while the pool leader earns 1 per cent externally? The pool is handing one entity the entire benefit of normalisation.
  • A hard-coded JPY floor or nominal-rate convention in your treasury policy is now a documented departure from arm’s length. Policy written for a zero-rate world is evidence against you in a positive-rate one.

Sources

Statistics Bureau of Japan (July 2026 CPI); Bank of Japan, Scheduled Dates of Monetary Policy Meetings in 2026; Bloomberg, LSEG and FT Alphaville calculations as reported by the Financial Times, 7–21 August 2026. Figures as at 21 August 2026; curve snapshot 5 August 2026.

This article is published by ajiho for general information only. It reflects ajiho’s own analysis of publicly available sources and does not constitute legal, tax or professional advice, nor a substitute for taking it. No client or confidential information is used in any Signal publication. Where the subject is a court or tribunal decision, the summary is ajiho’s reading of the published judgment and does not account for any subsequent appeal or development. You should take specific professional advice before acting on anything set out here.

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