Following recent swings in the world’s financial markets, Deputy Governor Shinichi Uchida ruled out the chance of an interest rate increase in the near future.
On August 7, Shinichi Uchida, the deputy governor of the Bank of Japan (BOJ), rejected the idea of short-term interest rate increases during a meeting with business leaders in Hakodate. “We must continue to ease at the current rate. We need to exercise greater caution when hiking interest rates as more and more new circumstances come to light,” he stated.
This declaration contrasts with last week’s tighter remarks made by Governor Kazuo Ueda. For the second time this year, the BOJ abruptly increased the reference interest rate at that point. In addition, Mr. Ueda stated that if the economy did as predicted, he would increase earnings even further.
To pay back the prior yen loan, investors must sell assets as a result of this choice. This led to a spike in the price of the yen earlier this week, and it also triggered a wave of sell-offs in the cryptocurrency and global stock markets.
BOJ’s view
According to Uchida, the BOJ’s viewpoint has shifted as a result of the recent significant swings in the financial markets. “We will not raise interest rates while the financial market is still unstable,” he stated.
According to Uchida, an increase in the value of the yen drives up the cost of imported items and accelerates inflation. The BOJ’s decisions are impacted by stock market volatility in the same way that it is by companies and consumers.
“Mr. Uchida’s remarks countered Mr. Ueda’s hardening position from the previous week. The current level of market volatility is quite high, and it is unlikely to decrease anytime soon, according to Mizuho Research & Technologies economist Hiroshi Kawata. This indicates that there is now very little chance that the BOJ will raise interest rates in October.
Following Mr. Uchida’s remarks, the USD price briefly rose to 1 USD for 147.5 JPY, a gain of about 2% over the yen. On the Japanese stock market, the Nikkei 225 index ended the day 1.2% higher. Nikkei 225 rose 10% on August 6, making up for a 13% decline earlier in the week.
According to Uchida, the US economy will experience a gentle landing while Japan’s economy will keep expanding. He said that he had not considered the maximum interest rate increase the BOJ may make.
“There is very little chance that the BOJ would raise interest rates in September and October unless market sentiment swiftly improves. However, the BOJ may hike interest rates in December if there is no longer a prospect of a US recession, according to Daiwa Securities analyst Toru Suehiro.
