Japan Trading Firms Raise In-house Interest Rate

Japanese trading firms increased the in-house short term interest rate in September. They apparently increased the rate by around 0.2% per year. The interest rate hike was first in 3 years and 5 months. The higher interest rate increases their cost by annual 40 billion yen. A major trading firm source said the damage is not serious but the change brings some impact. The higher interest rate could expand the bottom line gaps between strong and weaker firms. Trading firms pay interest for sales and purchase payments, money advanced to customers and usance for import settlement along with long term investment and loan. The trading firms increased the short term interest rates by around 0.2% per year. They recovered the normal interest rate changing activity after Bank of Japan terminated zero interest rate policy. The trading houses increased the interest rate by only 0.2% though BOJ increased the official discount rate by 0.3%. Trading houses’ largest cost factor is fixed cost, mainly for payroll. Except for fixed cost, interest represents large portion of the cost for trading firms. The higher interest rate could impact on their bottom line.