Author: Tom Mitchelhill, CoinTelegraph; Translated by: Deng Tong, Golden Finance
The Bank of Japan will not raise interest rates again this year, according to a former member of its board, after its last surprise rate hike sparked economic turmoil.
“At least for the rest of this year, they will not raise rates again,” Makoto Sakurai, a former BOJ board member, told Bloomberg in an Aug. 12 note. “Whether they can raise rates once before March next year is unclear.”
In early August, the Bank of Japan abruptly raised its benchmark interest rate to 0.25%, triggering a sharp sell-off in both the stock and cryptocurrency markets.
The rate hike disrupted the yen carry trade - in which investors borrow yen at low rates and use the funds to buy foreign assets.
It is worth noting that the catalyst was not the rate hike itself, but what happened afterwards: a surge in the yen in foreign exchange markets. From July 31, the dollar-yen exchange rate fell from around 153 yen to the dollar to 145 yen.
Overnight, yen-denominated loans 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 roiled global markets, Sukari said the move was a much-needed change for Japan, where interest rates have been 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 percent 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 would play out.
Meanwhile, the cryptocurrency market was also hit by a combination 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 interest rate hikes, especially during a period of 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 Bank of Japan's decision to raise interest rates has sparked criticism from Japan's main opposition party.
When Japan’s domestic market reopens after an Aug. 12 public holiday, a parliamentary committee will meet on Aug. 13 to decide when to summon Governor Kazuo Ueda and Finance Minister Shunichi Suzuki for questioning.