Another BoJ Rate Hike This Year?

by: Steven Towns

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Bank of Japan Official Hints at Rate Rises

  • Summary: Atsushi Mizuno, policy board member of the Bank of Japan, said the BoJ continues to plan to raise rates slowly but will not rule out the possibility of raising rates again this year. On July 26th, another BoJ board member Miyako Suda made similar remarks without clarifying when the next rate hike might happen. The BoJ raised the unsecured overnight call loan rate to 0.25% from effectively zero percent on July 14th -- the first rate hike in nearly six years. The BoJ's Mizuno was quoted in the article saying, "The Japanese economy is shifting to a moderate expansion path from a steady recovery path. Also, there is the possibility that Japan's potential economic growth rate may be upgraded. Given these facts, long-term bond yields undervalue Japan's economic recovery power."
  • Comment on related stocks/ETFs: With increasingly open and rather frequent communication between BoJ and even Fed governors with investors we have a situation where yes, it's good to have their latest thoughts on their respective economies but at the same time, it can be problematic because of their immediate impact on the markets and potential for misinterpretation and/or over-analysis. Yesterday, David Andrew Taylor commented on Mr. Mizuno's reiteration of the possibility of more rate hikes in the "Dollar Could Tank vs. Yen By End of Year." Unlike Mr. Taylor, I am skeptical of any further rate hikes this year and seriously doubt pushing towards 1.0% by year's end. The BoJ cannot afford shocking the markets and potentially stymieing growth since Japan just exited years of deflation, even though on a global scale short-term rates are still very low. Most of all, the BoJ doesn't want to be blamed for another market crash.