Japan to Continue Raising Interest Rate Amidst Ongoing Market Turmoil

The Bank of Japan (BoJ) Governor Kazuo Ueda has reaffirmed the central bank’s commitment to raising interest rates, signaling a continued tightening of monetary policy.

In a document submitted to the Council on Economic and Fiscal Policy on September 3, 2024, Ueda asserted that interest rate increases would continue provided the economy and inflation evolve as the BoJ anticipated.

Japan Imports Poses Challenges

The Governor’s remarks come amidst a period of relative stability in Japan’s economic outlook, with price increases aligning with the BoJ’s projections. However, rising import prices present a potential challenge, highlighting the need for ongoing vigilance.

Despite the recent stability, a significant portion of economists surveyed believe that the BoJ will undertake further interest rate adjustments before the end of the year. Notably, 41% of respondents indicated that December 2024 is the most probable timeframe for the next rate hike.

The BoJ’s stance has reverberated across global markets. The dollar, which had experienced gains against the yen in the preceding days, retreated, trading lower than the previous week’s close. The Antipodeans and Scandinavian currencies exhibited weakness within the G10, while a majority of emerging market currencies experienced declines.

The Russian ruble and Mexican peso emerged as exceptions, showcasing resilience. Interestingly, despite the yen’s rise and a strong correlation, the Chinese yuan traded softer on the day.

Fiat and Crypto Market Keeps Plummeting

Equities presented a mixed picture, with Japanese and Chinese indices experiencing fluctuations. India extended its rally for an unprecedented 11th consecutive session. Europe’s Stoxx 600 index threatened a second consecutive decline since the beginning of August, while US index futures traded lower.

In the bond market, despite a lack of coupon sales by the US Treasury this week, substantial supply from Europe and Japan contributed to mixed yields. The 10-year JGB yield surpassed 0.90%, while European benchmark yields softened slightly. The 10-year Treasury yield remained relatively stable near 3.90%.

Gold, trading near the $2500 level, has experienced a period of consolidation. In late August, the precious metal stalled just shy of $2532. Meanwhile, October WTI crude oil prices declined for the third consecutive week, extending a downward trend observed over the past eight weeks. Prices peaked near $77.60 last week but have since fallen below $73, pushing towards the $71 mark, which marked the previous month’s low.

Governor Ueda’s reaffirmation of the BoJ’s commitment to interest rate increases underscores the central bank’s proactive approach to managing inflation and maintaining economic stability in Japan. Investors and analysts will closely monitor the continued adjustments in interest rates as they assess the evolving economic landscape and anticipate further policy decisions.