Bank of Japan Future Rate Hikes in Question

Former Bank of Japan board member Makoto Sakurai has cast doubt on the likelihood of additional policy rate hikes for the remainder of 2024. In a recent interview, Sakurai suggested that the central bank might not increase the rate again until at least March of next year, given the market turmoil following its recent hike and the uncertain economic recovery outlook.

“The probability of another rate hike this year is minimal,” Sakurai stated late Friday. “It’s unclear whether they will be able to implement one hike by next March.”

Sakurai’s remarks come amid significant market turbulence following the BOJ’s decision on July 31 to raise the policy rate to 0.25% from its previous range of 0 to 0.1%. This adjustment, aimed at gradually normalizing monetary policy, has caused a notable reaction in the financial markets. The overnight index swap market now reflects a lower likelihood of further hikes by year-end compared to the period immediately following the BOJ’s July decision.

Bank of Japan Future Rate Hikes in Question After Market Volatility

Sakurai emphasized that while transitioning to a 0.25% rate represents progress from a near-zero interest environment, the central bank should pause further hikes to assess market stability. “The move to 0.25% was a significant step, and it’s prudent for them to wait and see how the markets respond before making additional changes,” he explained.

The BOJ’s communication strategy has faced scrutiny, particularly Governor Kazuo Ueda’s hawkish stance on potential future rate increases. This tone, coupled with worries about the US economy, contributed to a sharp rise in the yen and a severe decline in Japanese stocks—the worst since 1987. In response to the market instability, Ueda’s deputy has pledged to avoid further rate hikes during turbulent periods.

Sakurai supported the deputy’s stance, noting that stabilizing the market is currently paramount. However, he criticized Ueda’s communication approach at the July 31 press conference, suggesting it failed to convey the BOJ’s commitment to maintaining appropriate easing measures. “Ueda’s communication should have reinforced the BOJ’s intent to sustain easing,” Sakurai said. “His lack of clarity gave the impression of an imminent, aggressive rate increase.”

The criticism extends beyond monetary policy to political pressures. Sakurai pointed out that prior to the July hike, two senior members of the ruling party publicly urged the BOJ to act against the weakening yen. “This situation illustrates the consequences of public pressure on the central bank,” Sakurai remarked.

As Japan’s markets reopen after a public holiday, a parliamentary committee is set to convene on Tuesday to discuss when BOJ Governor Ueda and Finance Minister Shunichi Suzuki will be summoned for questioning. 

For the analysis and updates, visit FXAN to stay informed on the latest news and insights. Also, follow us on Instagram.