Ex-BoJ official: No more rate hike this year due to market instability

• Experts doubt further BoJ rate hikes this year.
• The BOJ’s recent rate hike triggered a market sell-off, affecting equities and crypto.

In an unexpected turn of events, experts, including a former Bank of Japan (BoJ) board member, suggest that further rate increases are unlikely this year due to the resulting market turmoil and Japan’s sluggish economic recovery. 

Reiterating the same, former board member Makoto Sakurai in a recent interview with Bloomberg said,

“They won’t be able to hike again, at least for the rest of the year. It’s a toss up whether they can do one hike by next March.” 

What happened until now?

This followed the BoJ’s unexpected rate hike to 0.25%, its second in 17 years, which triggered a 2.49% fall in the Nikkei index and also marked a significant departure from Japan’s long-standing ultra-loose monetary policy. 

Additionally, the equities and crypto markets also experienced a sharp sell-off following the Bank of Japan’s bold decision.

This highlights a curious connection between Japan and the crypto market, where shifts in Japan’s economy often have a direct impact on the crypto market, and vice versa.

What’s behind no rate hike?

For those clueless, the shift in market sentiment can be attributed to the overnight index swap market, which tracks expectations for future interest rate changes.

Currently, it suggests a reduced likelihood of the BOJ implementing another rate hike before the end of the year, in contrast to the initial outlook immediately following the rate increase in July. 

Elaborating on the same Sakurai added, 

“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%.” 

Here, Sakurai acknowledges that transitioning toward normalizing monetary policy was necessary but also challenging and resource-intensive.

Needless to say, Sakurai recommended the BOJ proceed with caution, suggesting they should pause and assess the impact before contemplating further rate hikes.  

This highlights how a small and uninformed decision can have an impact on the economy as a whole. 

That being said, Sakurai put it best when he highlighted, 

“Academic economists tend to be too forthright because the answers can be found in numbers. But the actual economy is not that simple. So authorities also need to feel their way and navigate the reality.”