Former Bank of Japan Official Predicts No Further Interest Rate Hikes by the BOJ This Year

Former Bank of Japan Official Predicts No Further Interest Rate Hikes by the BOJ This Year

Former Bank of Japan Official Predicts No Further Interest Rate Hikes by the BOJ This Year

According to former board members of the Bank of Japan (BOJ), due to the economic turmoil caused by the sudden interest rate hike last time, it is highly likely that the BOJ will not raise the benchmark interest rate again within this year.

Former BOJ board member, Sakura Makoto, stated in an interview with Bloomberg on August 12th, “They cannot raise interest rates again within this year, at least not in the remaining time of this year. However, it is still uncertain whether there will be another interest rate hike before March next year.”

In early August, the BOJ suddenly raised the benchmark interest rate to 0.25%, triggering a severe sell-off in the stock market and cryptocurrency market.

This interest rate hike disrupted yen carry trades, which allow investors to borrow yen funds at extremely low interest rates and then invest the funds in overseas assets. The main reason for the market turmoil was not the interest rate hike itself, but the sharp rise in the yen exchange rate in the foreign exchange market that followed. Starting from July 31st, the USD/JPY exchange rate dropped from around 153 yen to 145 yen.

With the rapid increase in the cost of yen-denominated loans, the total market capitalization of the cryptocurrency market evaporated over 500 billion USD within three days from August 2nd to August 5th.

Despite the disturbance caused by the interest rate hike in the global market, Sakura Makoto believes that this measure is necessary for Japan, as Japan has maintained interest rates between 0% and -0.1% for the past 17 years. He considers the BOJ’s shift from near-zero interest rates to 0.25% as a positive change and suggests that the central bank should observe market reactions before considering further interest rate hikes.

In fact, not only Sakura Makoto but even current BOJ officials have stated that there will be no further interest rate hikes during periods of intensified economic pressure. According to a previous report by Zombit, BOJ Deputy Governor Naito Shinichi stated on August 6th that they will not implement interest rate hikes in the situation of financial market instability. He explained that unlike the interest rate hikes in Europe and the United States, Japan is not in a situation where “failure to raise interest rates at a certain pace will result in policy lag.” He stated that it is necessary to maintain the current accommodative policy in the short term if the market continues to be unstable.