Former Bank of Japan Official Predicts No Further Rate Hikes This Year

The BOJ recently raised rates for the first time in over a decade, destabilizing global markets, including bitcoin.

A former Bank of Japan (BOJ) official, Makoto Sakurai, has indicated that the central bank is likely to hold off on further interest rate hikes for the remainder of 2024. This suggests a focus on maintaining market stability over pursuing additional tightening measures in the near term.

Market Stability Over Further Tightening

Sakurai, who served on the BOJ’s board, expressed skepticism about the possibility of another rate increase before the year ends. "They won’t be able to hike again, at least for the rest of the year,” Sakurai stated, according to Bloomberg. He also mentioned that the likelihood of a hike by March 2025 remains uncertain.

This follows the BOJ's decision on July 31 to raise its key interest rate to approximately 0.25% from the previous range of zero, marking the first rate hike in over a decade. The move signaled a shift away from the long-standing zero interest rate policy, which had significant implications for both domestic and global markets.

Impact on Markets and Cryptocurrency

The rate hike led to an appreciation of the Japanese yen, causing a reversal in the "risk-on" yen carry trades. This shift contributed to a sharp decline in traditional risk assets, including Bitcoin (BTC), which saw its value plummet from around $65,000 to $50,000 in less than a week. However, Bitcoin has since rebounded, trading above $58,000 as risk sentiment began to recover on Wall Street.

The market volatility prompted BOJ Deputy Governor Shinichi Uchida to downplay the bank's commitment to further rate increases, emphasizing that the BOJ would avoid hiking rates during periods of market instability. Sakurai supported Uchida's stance, noting that market stabilization is currently a critical concern.

Communication Challenges

Sakurai also criticized the BOJ's communication strategy, particularly under Governor Kazuo Ueda, suggesting that the central bank has struggled to clearly convey its intentions to maintain monetary easing. "The BOJ is moving from excessive monetary easing to appropriate monetary easing, and the biggest problem is that Ueda failed to communicate firmly they will maintain easing," Sakurai remarked.

Sakurai's comments indicate that the BOJ may prioritize market stability over additional tightening measures in the near term. While the central bank has begun shifting away from its ultra-loose monetary policy, the path forward remains uncertain, particularly given the challenges in communicating its strategy to the markets. As the year progresses, the BOJ's approach to balancing market conditions with monetary policy adjustments will be closely watched by investors and analysts alike.