Rakuten Bank Holds Back on JGBs as BOJ Rate Hike Looms

Rakuten Bank Ltd., a key player in Japan’s online banking sector, has seen its deposits soar to ¥11.7 trillion ($79 billion) by June 2025, nearly tripling over the past five years. This rapid growth, driven by its digital banking services, has positioned the bank as a significant financial force within Rakuten Group Inc. However, with Japan’s bond market facing heightened volatility, CEO Tomotaka Torin has adopted a cautious stance. “We’re not going for any aggressive buying of JGBs until we’ve seen at least another rate hike or two,” Torin stated, highlighting the bank’s strategy to avoid losses from rising yields. This approach reflects broader market uncertainty as investors navigate the Bank of Japan’s (BOJ) shift from negative interest rates to gradual tightening.

Japan’s government bond (JGB) market has been turbulent in 2025, with yields on longer-maturity bonds surging amid global market routs. Rakuten Bank, holding ¥617 billion in JGBs for maturity, has refrained from new purchases in the first half of the year. The BOJ’s monetary tightening, coupled with rising inflation expectations, has led markets to anticipate a 25-basis-point rate hike by April, as indicated by overnight indexed swaps. Torin’s strategy focuses on operational resilience, ensuring the bank avoids setbacks from climbing yields. This cautious approach extends to its mortgage lending, with the bank avoiding ultra-low-rate loans to maintain profitability as borrowing costs rise.

Rakuten Bank’s stance signals broader challenges for Japan’s financial sector as it adjusts to a higher-yield environment. The bank’s loan portfolio, including credit card financing, reached ¥4.76 trillion by June, up 12% year-on-year, underscoring its growing role in Rakuten Group’s earnings. For global investors, particularly in Singapore, the USD/JPY forex pair remains a focal point, as BOJ policy shifts could strengthen the yen. Markets are closely watching for further BOJ signals, with analysts noting increased inflation expectations driving rate hike bets. Rakuten Bank’s restraint in JGB purchases may prompt other institutions to adopt similar caution, potentially amplifying volatility in global bond markets.