Former Bank of Japan (BOJ) board member Makoto Sakurai has dismissed the likelihood of another rate hike this year, citing ongoing market turbulence and a slow economic recovery. Sakurai’s comments came in an interview on Friday, following the BOJ’s recent decision to raise the policy rate to 0.25% from a range of 0 to 0.1% on July 31.
Sakurai noted, “They won’t be able to hike again, at least for the rest of the year. It’s a toss-up whether they can do one hike by next March.” He emphasized that the recent rate increase, intended to transition from near-zero rates to a more normalized level, has already required substantial effort and suggests a period of observation is necessary before considering further hikes.
The market reaction to the BOJ’s move has been significant. The overnight index swap market now indicates a reduced likelihood of additional rate hikes by the end of the year compared to the period immediately following the July decision. Sakurai expressed concern that the BOJ’s communication, especially under Governor Kazuo Ueda’s more aggressive stance, has contributed to market instability.
Japanese stocks experienced their most severe drop since 1987 after the rate increase, prompting reassurances from Ueda’s deputy that no further hikes would be made in unstable market conditions. Sakurai supported this cautious approach, stating, “Uchida’s remarks were appropriate because market stabilization is very important now.”
Sakurai criticized Ueda’s handling of the BOJ’s communication, arguing that the governor’s statements created an impression of a more aggressive rate hike path than intended. “Ueda failed to communicate firmly that the BOJ would maintain easing,” Sakurai said. “His statements gave the wrong impression that the BOJ would continue raising rates.”
As Japan’s markets prepare to reopen after a public holiday, the BOJ’s July decision has drawn criticism from Japan’s main opposition party. A parliamentary committee is set to meet to discuss whether BOJ Governor Ueda and Finance Minister Shunichi Suzuki should be called in for questioning. Additionally, the government is expected to release its second-quarter GDP report this Thursday, with analysts anticipating a rebound from previous contraction.
Sakurai also highlighted the political pressures that influenced the BOJ’s decision, pointing out that calls from senior ruling party members for a rate hike to support the yen may have contributed to the current market volatility. “Now you know what happens when you overstep the line,” Sakurai said, referring to the public pressure exerted on the BOJ.
