Former Bank of Japan member: Another rate hike unlikely this year

Author: Tom Mitchelhill, CoinTelegraph; Compiler: Deng Tong, Golden Finance

The Bank of Japan will not raise interest rates again this year, according to a former member of the central bank’s board of directors, following the economic turmoil caused by its last sudden rate hike.

“At least for the rest of this year, they will not raise interest rates again. Whether they can raise interest rates once before March next year is still unknown,” former Bank of Japan board member Makoto Sakurai told Bloomberg in a report on August 12.

In early August, the Bank of Japan suddenly raised its benchmark interest rate to 0.25%, triggering a sharp sell-off in the stock and cryptocurrency markets.

The rate hike disrupted the yen carry trade — where investors borrow yen at low rates and use those funds to buy foreign assets.

Notably, the catalyst wasn’t the rate hike itself, but what happened afterwards: a surge in the yen in foreign exchange markets. The dollar-yen exchange rate fell from around 153 yen to the dollar to 145 yen starting July 31.

Overnight, loans denominated in yen became very expensive.

A few days later, the total cryptocurrency market capitalization fell by more than $500 billion in three days, between August 2 and August 5.

While the rate hike may have disrupted global markets, Sukari said the move was a much-needed change for Japan, which has had interest rates between 0 and -0.1% for the past 17 years.

“It’s a good thing that they decided to move from almost zero interest rates to a normal 0.25% in the process of returning to normal monetary policy,” Sakurai said, adding that it would be wise for the central bank to “wait and see” how further rate hikes will play out.

Meanwhile, the cryptocurrency market has also been hit by a double whammy of crowded leveraged positions and massive selling by traders such as Jump Trading, which sold more than $370 million in ETH between July 24 and August 4, causing the cryptocurrency market to plummet.

After the turmoil, the Bank of Japan said it would not consider further rate hikes, especially during economic stress.

On August 6, Bank of Japan Deputy Governor Shinichi Uchida said the central bank would not raise interest rates when financial markets are unstable.

"As we are seeing sharp fluctuations in domestic and overseas financial markets, it is necessary to maintain the current level of monetary easing for the time being," Uchida said.

The BOJ's decision to raise rates has drawn criticism from Japan's main opposition party.

A parliamentary committee will meet on Aug. 13 to decide when to summon Governor Kazuo Ueda and Finance Minister Shunichi Suzuki for questioning when Japan's domestic markets reopen after a public holiday on Aug. 12.