Former Bank of Japan (BOJ) board member Makoto Sakurai suggests that the BOJ may refrain from implementing another rate hike in 2024. Seamus Mac Gorain, JP Morganโs head of global rates, concurs with this outlook. However, a different report indicates that 22 out of 34 economists anticipate an additional rate hike later this year.
In response to these predictions, crypto commentators argue that Bitcoin and other cryptocurrencies are generally unaffected by monetary policy decisions, unlike the equity market. However, the โportfolio balance channelโ theory implies that changes in monetary policy could still influence the cryptocurrency market.
Japanโs Interest Rate Outlook and Market Reactions
Some analysts andย commentators believe that Japan is unlikely to raise interest ratesย in 2024, as such a move could lead to a market meltdown. Former BOJ board member Makoto Sakurai recently stated, โThey wonโt be able to hike again, at least for the rest of the year. Itโs a toss-up whether they can do one hike by next March.โ
Maintaining a near-zero interest rateย is seen as conventional for dealing effectively with inflation. The BOJ aims to keep inflation around 2%. Economists argue that a slightly higher cost of borrowing could be beneficial. Sakurai agrees that a 0.25% rate hike is necessary to normalize monetary policy but advises the BOJ to โwait and see for a whileโ before making further decisions. Meanwhile, theย market critiques the timing of a potential rate hike.
Sakurai also pointed out that Japanโs economic conditions alone did not fully account for recent equity market volatility, suggesting that external factors, especially from the US, played a significant role. Previousย reports highlightedย that disappointing US payroll data, lower-than-expected earnings from major tech companies, and recession concerns contributed to market instability.
Seamus Mac Gorain, head of global rates at JPMorgan Asset Management, noted that while the BOJ could consider cutting rates, such actions would depend on the Federal Reserveโs policies and the US economic situation. If the US enters a recession, any BOJ rate hike might be delayed until 2025.
Market sentiment remains mixed, with about 22 out of 34 economists surveyed anticipating a rate increase before the end of 2024. However, traders are less confident, and the likelihood of a rate hike has decreased.
Bitcoinโs Role Amidst Global Market Turmoil
Following last weekโs market turmoil, crypto advocates have been increasingly detaching Bitcoin from the equity markets, promoting it as a โway outโ of central bank-driven sell-offs. Luke Martin, a notable crypto commentator, highlighted the situation with a tweet, noting the extreme market reaction to Japanโs minimal rate hike. Despite Japanโs small increase in rates, stocks experienced one of their largest sell-offs in decades, underscoring the dependency of the global financial system onย central bankย stimulus. Martin emphasized that Bitcoin ($BTC) represents a potential escape from this dependency.
Investment researcher Jim Bianco referenced the โportfolio balance channelโ theory in a recent post, suggesting that disruptions in financial markets can have widespread effects. This theory implies that shifts in investment strategies, such as moving funds between stocks, bonds, and other assets, canย impact various market sectors. While the theory does not explicitly address Bitcoin and the broader crypto market, the spillover effects are evident.
The theory argues that just as traditional investments like stocks and bonds are affected by changes in portfolio allocations, so too can cryptocurrencies. Consequently, Bitcoinโs recent price fluctuations and recovery seem influenced by broader market movements, highlighting the interconnectedness of financial markets.
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