Former Bank of Japan board member Makoto Sakurai said the Bank of Japan (BOJ) will not raise its base rate again this year following economic turmoil caused by the recent sudden rate hike.
“They won’t be able to raise rates again, at least for the rest of the year. The question is whether they can do another hike in March.”
Stock and cryptocurrency markets saw a sharp sell-off in early August after the BOJ unexpectedly raised its benchmark interest rate to 0.25%.
The rise in interest rates has destabilized the Yen Carry Trade – where investors borrow in Yen at low interest rates and use the money to buy foreign-owned assets.
Notably, the catalyst was not the rate hike itself, but what happened next: the yen’s surge in the foreign exchange market. Since July 31, the USD/JPY exchange rate has fallen from around 153 yen to the dollar to 145.
The value of the Yen has soared ahead of the BOJ's rate hike. Source: Adam Khoo
Overnight, yen loans became much more expensive.
Days later, the total cryptocurrency market capitalization dropped by more than $500 billion in three days from August 2 to 5.
While the rate hike could unsettle global markets, Sukari said the move was a necessary change for Japan, which has maintained interest rates between zero and -0.1% for the past 17 years.
“In the process of returning to normal monetary policy, it is good that they decided to move from a world of near-zero interest rates to a normal level of 0.25%,” Sakurai said, stressing that it would be wise for the central bank to “wait and see” how further hikes unfold.
Meanwhile, the crypto market was also hit by a combination of crowded leveraged positions and excessive selling pressure from traders like Jump Trading, who dumped over $370 million worth of ETH between July 24 and August 4, sending prices plunging.
Following the turmoil, the Bank of Japan said it would not make any further interest rate hikes during the economic stress.
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