NHK reports that the Bank of Japan is discussing raising interest rates to 0.25%, and combined with previous analyses, the central bank may propose specific measures to reduce the balance sheet at this meeting. Will this 'double whammy' affect global markets today?
Global capital markets were turbulent overnight. The short-term yen quietly broke through the threshold of 153 to 155, helping to push the USD/JPY exchange rate to a nearly 5% decline in July. Arbitrage trading suffered another blow, further pressuring US technology stocks. In addition, the 2-year Japanese government bond yield surged 7 basis points overnight.
What happened? Perhaps it's because the Bank of Japan, in this week's 'Super Central Bank Week,' has begun to 'stir up the wind and rain' again, re-enacting the operation of 'pre-release of negative interest rates' before the end of the policy in March of this year.
Bank of Japan's 'Pre-Release': "Raising interest rates and shrinking balance sheets" at the same time?
On Wednesday, July 31, when the Bank of Japan announces its interest rate decision for July, NHK cited informed sources who revealed that members of the Bank of Japan's rate-setting committee are discussing raising interest rates to around 0.25%. Currently, the interest rate is in the range of 0%-0.1%.
Within the Bank of Japan, more and more people believe that the country's inflation is accelerating, which is in line with their expectations. In this context, the Bank of Japan will consider raising interest rates at the July meeting. Some officials believe that the Bank of Japan must be wary of the risk of a weakened yen pushing up inflation.
The impact of this expectation on the Japanese and global markets cannot be understated. Considering the previous analysis that the Bank of Japan may propose specific measures to shrink the balance sheet at this meeting, a 'double blow' may occur at the same time.
However, it is worth noting that although many market participants expect the Bank of Japan to raise interest rates this year, they differ on the specific timing:
Most on Wall Street expect the Bank of Japan to stand pat in July, but still anticipate the possibility of a rate hike. JPMorgan and Bank of America expect a 15 basis point rate hike.
In addition, the market expects the Bank of Japan to announce a quantitative tightening (QT) plan to gradually reduce the scale of bond purchases, with the purchase speed expected to drop to 3 trillion yen per month over the next year to two and a half years.
Editor/ping