NIKKEI225: BoJ Policymaker Reiterates Stance on Rate Hikes

Junko Nakagawa, former chair of Nomura Asset Management, said that the central bank would continue to raise rates if inflation remained in line with their expectations.

The comment reaffirms previous comments from BoJ officials regarding further interest rate hikes after the rout caused by their latest move. I see statements of this kind as forward guidance, to prepare the market for what is to come.

The previous hike at the end of July took the market somewhat by surprise and created undesired volatility. The rout was also helped by the weak NFP data from the U.S. released early August raising concerns for Japan’s reliance on exports.

In her speech overnight to business leaders she stated that:

“Given real interest rates are currently very low, we will adjust the degree of monetary support, from the standpoint of sustainably and stably achieving our 2% inflation target, if our economic and price forecasts are met.”  

The Yen & Market Expectations

The NIKKEI225 has had a subdued reaction, down 0.72% on the day, as investors weigh the effects of higher rates and the economic performance overall. The yen has continued to strengthen after the comments with the USD/JPY falling by 0.75% to 141.30.

Nakagawa also mentioned that data released since the central bank’s last meeting in July showed that economic and price predictions seem to be on track. Consumer inflation hit 2.7% in July and has been above or at the BoJ’s 2% target for 27 months.

The GDP Growth rate YoY showed a sharp rise from -2.3% for Q1 2024 to 2.9% for Q2 2024. However, she also added that she had no pre-set timing for further interest rates, and that the markets remained unstable.

The market expects the BoJ to keep interest rates on hold at their next meeting on September 20. However, the conviction of further hikes before the year-end is rising.

Given the various comments indicating clearly the BoJ’s intentions, I would say that more hikes will follow if inflation stays at or above 2% and the economy shows signs of expansion.