Former Bank of Japan director Makoto Sakurai said that the Bank of Japan will not be able to raise policy rates again this year. He said, “At least for the rest of the year, they will not raise interest rates again. It is difficult to say whether they will raise interest rates before March next year.”
Caixin Japan reported on August 12 that former Bank of Japan director Makoto Sakurai said that considering the recent market turmoil caused by the central bank's recent interest rate hike (i.e. "Black Monday") and the low possibility of rapid recovery in the Japanese economy, the Bank of Japan will not be able to raise policy rates again this year.
In a recent interview, he said, "At least for the rest of the year, they will not raise interest rates again. It is difficult to say whether they will raise interest rates before March next year."
Recent market turmoil and the Bank of Japan's response have kept market participants cautious about the outlook. Currency market pricing shows that the likelihood of a rate hike by the Bank of Japan this year has declined significantly. Bank of Japan Deputy Governor Masayoshi Amamiya also promised not to raise interest rates in unstable markets.
Seamus Mac Gorain, global head of interest rates at JPMorgan, said after Amamiya's comments that this meant that the Bank of Japan's next rate hike may have to wait until next year.
"They (the Bank of Japan) may carry out a series of rate hikes, but this will depend on a fairly mild global background. Clearly, the Bank of Japan will not take action until the market stabilizes. And whether or not the market stabilizes, of course, depends on whether the US and global economies can avoid a recession." he said.
Sakurai pointed out that in the process of restoring normal monetary policy, they decided to shift from a world that was almost zero to a normal 0.25%, which is a good thing. But this takes too much energy, so they should wait and see for a while to determine whether to further raise interest rates.
At the end of July, the Bank of Japan announced a surprise interest rate hike, triggering a global market tsunami. As Japanese yen arbitrage trades were closed on a large scale, not only the financial markets from Japanese government bonds, yen to Japanese stocks almost all suffered bloodshed, but also produced linkage effect, US stocks, Korean stocks and other countries stock markets were all devastated.
Against this background, the Bank of Japan's external communication has drawn close attention. Sakurai criticized Governor Haruhiko Kuroda's strong tone on further interest rate hikes.
He explained, "Kuroda did not control the situation well. The Bank of Japan is moving from excessive monetary easing to appropriate monetary easing, and the biggest problem is that Kuroda did not firmly convey that they will continue to maintain the easing policy. This is the condition they have always maintained. Without such wording, the impression Kuroda ultimately gives people is that he will 'continuously raise interest rates.'"
"Academic economists tend to be too straightforward because answers can be found in numbers. However, actual economics are not that simple. Therefore, the authorities also need to explore appropriate ways to deal with reality," he added.
This week, Japan will celebrate the Obon Festival, a period when Japanese people commemorate their ancestors. Although Bank of Japan officials have no public speaking arrangements, the government plans to announce second-quarter gross domestic product (GDP) data on Thursday. Analysts expect the data to rebound after a contraction.
Editor/Emily