Bank of Japan’s Rate Hike: Former Official Forecasts No Further Increases in 2024

Key Points

• The Bank of Japan (BOJ) raised interest rates for the first time in over a decade, causing significant market turbulence and impacting cryptocurrency values.
• Former BOJ board member Makoto Sakurai predicts no additional rate hikes for the remainder of 2024, citing the need for market stabilization.
  

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On July 31, 2024, the Bank of Japan (BOJ) made a significant move by raising its key interest rate to approximately 0.25% from a range of zero, marking the first rate hike in over a decade. This shift from the long-standing zero-interest rate policy has sent shockwaves through global financial markets, including the cryptocurrency sector.

Market Reaction and Cryptocurrency Impact

The sudden rate hike triggered a series of market reactions:

1. The Japanese yen strengthened considerably, with the USD/JPY exchange rate dropping from around 153 yen per dollar to 145.
2. This surge in yen value led to the unwinding of the “yen carry trade,” in which investors borrow yen at low interest rates to purchase foreign-owned assets.
3. The resulting market turmoil caused a significant sell-off in traditional risk assets and cryptocurrencies.
4. Bitcoin, in particular, saw a dramatic drop from approximately $65,000 to $50,000 in less than a week, though it has since partially recovered to trade above $58,000.

Former BOJ Official’s Insights

Makoto Sakurai, a former board member of the Bank of Japan, shared his perspective on the situation:

1. No further rate hikes expected in 2024: Sakurai stated, “They won’t be able to hike again, at least for the rest of the year,” emphasizing the need for market stability.
2. Possibility of a future hike: He added that it’s a “toss-up whether they can do one hike by next March,” suggesting uncertainty about the BOJ’s next moves.
3. Support for the initial rate hike: Despite the market turbulence, Sakurai views the move positively, saying, “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%.”

BOJ’s Communication and Market Stabilization

The market upheaval prompted a response from BOJ officials:

1. Deputy Governor Shinichi Uchida attempted to calm markets by stating that the bank wouldn’t hike rates when markets are unstable.
2. Sakurai endorsed this approach: “Uchida’s remarks were appropriate because market stabilization is very important now.”
3. He also highlighted a communication issue: “The biggest problem is that [BOJ Governor] Ueda failed to communicate firmly so that they will maintain easing. That’s always been a condition they’ve kept.”

Looking Ahead

As markets continue to digest the implications of the BOJ’s policy shift, investors and analysts will closely monitor any signals from the central bank regarding future rate decisions. The BOJ’s challenge will be to balance its move towards normalizing monetary policy with the need to maintain market stability, particularly given the global ripple effects of its decisions.

For now, Sakurai’s advice for the BOJ is to “wait and see” how the current rate hike plays out before considering any further increases. This cautious approach may reassure markets as they adapt to Japan’s new interest rate environment.