A senior executive from Sumitomo Mitsui Financial Group has stated that the Bank of Japan should clearly outline its path toward policy normalization after an expected rate hike this month, in order to stabilize the government bond market.

This call for greater clarity from Japan's second-largest bank comes as the yield on the 10-year Japanese government bond has reached a three-decade high, and the yen has weakened against the US dollar, approaching the key psychological level of 160, despite significant intervention efforts.

The executive indicated that the market widely anticipates a rate hike by the BOJ this month, and the central bank should follow this with clear communication regarding its normalization trajectory.

Sumitomo Mitsui (ASX: SMFG)

Arihiro Nagata, the global markets chief at Sumitomo Mitsui Financial Group, expressed in an interview that the BOJ should raise rates in June, an action he fully expects to happen. He emphasized that the crucial aspect of the BOJ's mid-June meeting will be how clearly it communicates its path toward policy normalization.

Nagata noted that the more explicit the policy path, the more likely it is that the potential for further rises in long-term interest rates will diminish. He added that the BOJ simply needs to signal that its outlook is broadly aligned with market expectations, which currently price in nearly two rate hikes this year and, to some extent, anticipate further policy tightening beyond that.