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A former board member of the Bank of Japan (BOJ) has stated that the central bank is unlikely to implement another interest rate hike this year, following the economic disruptions caused by its recent sudden increase.
Makoto Sakurai, a former BOJ board member, conveyed to Bloomberg on August 12 that the likelihood of an additional rate hike before the end of the year is minimal. “They won’t be able to hike again, at least for the rest of the year,” Sakurai said, adding, “It’s a toss-up whether they can manage one hike by next March.”
The BOJ’s unexpected rate increase to 0.25% in early August led to significant volatility in both equities and cryptocurrency markets. The immediate aftermath saw a sharp decline in the USD/JPY exchange rate, with the yen strengthening from around 153 yen per dollar to 145 yen per dollar, disrupting the yen carry trade where investors borrow yen at low rates to invest in higher-yielding assets abroad.
The impact of the rate hike was exacerbated by a surge in the yen’s value, which made yen-denominated loans considerably more expensive overnight. This market reaction contributed to a drastic drop in the total market capitalization of cryptocurrencies, which fell by over $500 billion within three days from August 2 to August 5.
Despite the market turbulence, Sakurai supported the BOJ’s decision, viewing the rate hike as a necessary step for Japan, which had maintained near-zero interest rates for 17 years. “In the process of returning to normal monetary policy, it’s good that they decided to move from a world of almost zero interest rates to a normal 0.25%,” Sakurai noted. He advised that the central bank should “wait and see” before considering further rate adjustments.
The cryptocurrency markets also faced additional strain from leveraged positions and substantial selling by major traders, including Jump Trading, which sold over $370 million in Ethereum between July 24 and August 4.
In response to the ongoing market instability, BOJ Deputy Governor Shinichi Uchida announced on August 6 that the central bank would refrain from raising interest rates further in the current volatile environment. Uchida emphasized the need to maintain current levels of monetary easing due to sharp fluctuations in financial markets both domestically and internationally.
The BOJ’s decision has sparked criticism from Japan’s primary opposition party. A parliamentary committee is scheduled to meet on August 13 to discuss when Governor Kazuo Ueda and Finance Minister Shunichi Suzuki will be summoned for questioning, as domestic markets reopen following a public holiday on August 12.
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