TLDR

  • Former Bank of Japan (BOJ) board member Makoto Sakurai stated that the central bank is unlikely to raise interest rates again this year.

  • The BOJ recently raised its key interest rate to about 0.25% from near zero on July 31, the first hike in over a decade.

  • This rate hike caused market turmoil, including a sharp sell-off in equities and crypto markets, and a surge in the value of the yen.

  • BOJ Deputy Governor Shinichi Uchida said the bank would not raise rates when financial markets are unstable.

  • The next potential rate hike might come by March 2025, but Sakurai described it as a “toss up.”

The Bank of Japan (BOJ) is not expected to implement further interest rate hikes this year, according to former board member Makoto Sakurai.

This statement comes in the wake of recent market turmoil following the BOJ’s decision to raise rates for the first time in over a decade.

On July 31, the BOJ increased its key interest rate to approximately 0.25% from near zero, marking a significant shift in Japan’s monetary policy. This move, while long anticipated by some economists, caused substantial ripples across global financial markets, including the cryptocurrency sector.

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

This cautious outlook suggests that the BOJ is likely to adopt a wait-and-see approach in the coming months, prioritizing market stability over aggressive monetary tightening.

The recent rate hike led to a sharp appreciation of the Japanese yen, which in turn destabilized the popular yen carry trade.

This strategy, where investors borrow in yen at low interest rates to invest in higher-yielding assets abroad, saw a rapid unwinding as the yen’s value surged. The USD/JPY exchange rate dropped from around 153 yen per dollar to 145 in a matter of days, making yen-denominated loans significantly more expensive overnight.

The fallout from this monetary policy shift was felt across various asset classes. The cryptocurrency market, in particular, experienced a severe downturn, with the total market capitalization falling by over $500 billion in just three days between August 2 and August 5.

Bitcoin, the largest cryptocurrency by market cap, saw its price plummet from around $65,000 to $50,000 in less than a week, although it has since partially recovered to trade above $58,000.

In response to the market volatility, BOJ Deputy Governor Shinichi Uchida moved to reassure investors, stating that the central bank would not raise interest rates when financial markets are unstable. “As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida said.

Despite the short-term market disruption, Sakurai defended the BOJ’s decision to raise rates, viewing it as a necessary step towards normalizing Japan’s monetary policy after nearly two decades of ultra-low interest rates. “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%,” he said.

However, the rate hike has not been without its critics. Japan’s primary opposition party has called for a parliamentary committee to question BOJ Governor Kazuo Ueda and Finance Minister Shunichi Suzuki about the decision and its impact on the economy.

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