The Bank of Japan is thinking twice before raising interest rates again. In the current environment, and after he tsunami financial that motivated your last decisionInstitution officials said the likelihood of a further upward adjustment being announced on September 20 is low. In fact, the market consensus also does not expect the benchmark silver price in Japan to rise from the current level of 0.25% until the last meeting of the year, which will take place in December.
The Bank of Japan wants to avoid a new collapse of domestic stocks, loss of control of its currency and the profitability of its debt while there is also political instability after the current prime minister stepped down. And there are both internal and external motivations that would justify a pause in Japanese monetary policy, which is currently moving against the grain of the major central banks.
On the one hand, the latest interest rate hike in the country, by 15 basis points, coincided with a negative reading of the employment data in the United States. Much worse than what was known last Friday. Investors interpreted the rise in the unemployment rate as a sign of a recession and a more severe adjustment of the monetary policy of the American Federal Reserve. In other words, the market was counting on a drastic reduction in the gap between interest rates in Japan and the United States, which would limit the Advantages of borrowing yen to buy assets in other markets, what is called to trade.
The direct consequence was Nikkei 225 index collapses by 20% in three sessions and the volatility of the currency market in the first steps of last month. The functions of central banks are not to keep domestic stocks afloat. However, at the end of August, the governor of the Bank of Japan (BoJ) already predicted that there would be no further increases as long as the stock market and the foreign exchange market showed volatility. “Central banks they are not insensitive to the consequences of a sharp drop in prices. He The BoJ has been clear“, commented the advisor and general manager of Renta 4 for elEconomista.esJesus Sanchez Quiñones.
Thus, the Bank of Japan would like to avoid at all costs provoking the same shock of the market with its rate increases, according to sources from the institution collected by Bloombergin a month in which the European Central Bank has already cut rates and the US Federal Reserve (Fed) is expected to do so next week. The advantage for the Japanese governor is that The two central banks speak before from its meeting of September 20.
Market consensus is for a rate cut in the eurozone and the United States this month, but not a further upward adjustment in Japan before the last meeting of 2024 in December. “Is BoJ unlikely to raise rates this month “The rate of inflation is still very high given the instability in financial markets, but they have made it clear that they are considering tightening policy, so I think it is possible to see a further increase during the year,” commented the chief economist of the Norinchukin research institute, Takeshi Minami.
BoJ awaits ECB and Fed
In the meantime, further adjustments would come from the ECB and the Fed, which works in the Fed’s favour. the yen, which continues to appreciate against the dollar to the point that it already costs 143 yen to buy a dollar. In fact, since its peak of the year (and its peaks of 1986), when a dollar was exchanged for more than 161 yen, the American currency has fallen by more than 11.5%, which is a remarkable fact on the foreign exchange market.
Japanese sovereign debt profitability has also been affected after Japan’s latest rate hike and the tsunami later financier. Although there are still millions of yen of national debt in the hands of the Bank of Japan after its repurchase programs, the yield on the ten-year Japanese bond fell from 1.02% to 0.77% in a week, then recovered to reach 0.88% today.
Currently, the European Central Bank interest rates are 3.5% (deposit facility rate), the Fed’s benchmark is 5.5% and the Bank of Japan’s is 0.25%. This leaves the spread at 525 basis points between Japan and the United States and 400 on the European side. At the end of the year, the market estimates that this The gap between the Fed and the BoJ will narrow to the 425-point zone and above 300 compared to Europe, with the ECB and the Federal Reserve being the real culprits in narrowing the gap between three of the most important monetary policies in the West.
