According to a former board member of the Bank of Japan (BOJ), it is highly unlikely that the BOJ will raise the benchmark interest rate again this year due to the economic turmoil caused by the last sudden rate hike. Former BOJ board member Makoto Sakurai stated in an interview with Bloomberg on August 12, “They cannot raise rates again this year, at least not for the remainder of the year. However, whether there will be a rate hike before March next year remains uncertain.”
At the beginning of August, the BOJ unexpectedly raised the benchmark interest rate to 0.25%, triggering a severe sell-off in the stock and cryptocurrency markets. This rate hike disrupted yen carry trades, a strategy that allows investors to borrow yen at very low rates and then invest the funds in overseas assets. The main reason for the market turbulence was not the rate hike itself, but rather the subsequent sharp appreciation of the yen in the foreign exchange market. Since July 31, the USD/JPY exchange rate fell from approximately 153 yen to 145 yen.
As the cost of yen-denominated loans rapidly increased, the total market capitalization of the cryptocurrency market evaporated by more than $500 billion within three days from August 2 to August 5.
Despite the rate hike disrupting global markets, Sakurai noted that this move was necessary for Japan, as interest rates had remained between 0 and -0.1% for the past 17 years. He believes that the BOJ’s shift from near-zero rates to 0.25% is a positive change and suggested that the central bank should observe market reactions before considering further rate increases.
In fact, aside from Sakurai, even current BOJ officials have indicated that no further rate hikes will take place during periods of increased economic pressure. According to a previous report by Zombit, BOJ Vice Governor Shinichi Uchida stated on August 6 that “no rate hike will be implemented” amid instability in the financial capital markets. He explained that, unlike the rate hike processes in Europe and the U.S., Japan is not in a situation where “failure to raise rates at a certain pace would lead to a delayed policy response.” He mentioned that if market instability persists, it is necessary to maintain the current accommodative policy in the short term.
