US, EU, UK Rate Hikes Expected... "BOJ Must Be Cautious"
As major advanced countries are consecutively cutting interest rates, it has become difficult for the Bank of Japan (BOJ) to raise rates, Bloomberg reported on the 3rd (local time).
Andrew Bailey, Governor of the Bank of England (BOE), said in an interview with The Guardian on the same day that if inflation continues to stabilize, more aggressive rate cuts would be possible.
Last month, the U.S. Federal Reserve (Fed) implemented a 'big cut' by lowering interest rates by 0.5%, and further cuts are expected in November. The European Central Bank (ECB) lowered its benchmark interest rates twice in June and September, and a cut in October is also being discussed. Additional rate cuts are also anticipated in countries such as Canada and Sweden.
Krishna Guha and Marco Casiraghi, central bank analysts at Evercore ISI, said, "The gradual steps toward faster easing outside Japan mean that the BOJ needs to be cautious," adding, "As other central banks lower rates more quickly, it will become more difficult for the BOJ to raise rates."
Following the BOJ's rate hike on July 31, global stock markets plunged due to the unwinding of yen carry trades.
Japanese Prime Minister Shigeru Ishiba said during his first meeting with BOJ Governor Kazuo Ueda on the 2nd, "Personally, I do not think the environment is right for additional rate hikes." Bloomberg described this policy guidance as an unusual move.
Taro Kimura, Chief Economist for Japan at Bloomberg Economics, said, "The current message from the Japanese government is that the BOJ should confirm a soft landing in the U.S. before reducing its stimulus measures."
Within Japan, there are concerns that the BOJ might raise rates too quickly. Earlier on the 1st, Ryosei Akazawa, Minister for Economic Revitalization, urged caution regarding BOJ’s monetary policy, saying, "I hope the BOJ carefully considers rate hikes. Under no circumstances should they do anything that would cool the economy in every aspect for the time being," and added, "We will prioritize escaping deflation." Governor Ueda has stated that if the economy and inflation move as expected, rates will be raised gradually.
The market is eyeing the possibility of a rate hike in January next year. Economist Kimura said, "Prime Minister Ishiba and Governor Ueda agreed on the key point that now is not the time to raise rates further," but added, "However, I believe that by January, the environment will be more favorable for another rate hike."
Analysts Guha and Casiraghi do not rule out December but see a higher likelihood of a hike in January.
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