BOJ’s Interest Rate Outlook: Stability Over Hikes

Japanese Central Bank’s Interest Rate Outlook

A former official of the Bank of Japan (BOJ) has indicated that the central bank is likely to postpone any further interest rate hikes until next year, emphasizing a preference for maintaining market stability in the short term. According to Makoto Sakurai, a former member of the BOJ’s board, “They won’t be able to hike again, at least for the rest of the year.” He elaborated, “It’s a toss-up whether they can implement one hike by next March.”

On July 31, the BOJ took a significant step by raising its key interest rate to approximately 0.25% from a range near zero, marking the first increase in over a decade. This shift away from the long-standing zero interest rate policy has led to an appreciation of the Japanese yen, which in turn triggered a reversal of the popular “risk-on” yen carry trades. Consequently, traditional risk assets faced significant pressure, resulting in a sharp decline in Bitcoin’s value from around $65,000 to $50,000 within a mere week.

However, Bitcoin has since managed to recover, trading above $58,000 as signs of a risk reset began to emerge on Wall Street. This market turmoil prompted BOJ Deputy Governor Shinichi Uchida to temper the bank’s previously hawkish stance, affirming that rate hikes would not be pursued during periods of market instability. “Uchida’s remarks were appropriate because market stabilization is very important now,” Sakurai noted.

Sakurai further explained, “The BOJ is transitioning from a phase of excessive monetary easing to a more balanced approach. The biggest issue is that Governor Ueda has not effectively communicated that they will continue with easing measures. This has always been a critical condition for their policy.”