On August 5th, the Nikkei stock average fell by 4,451 yen 28 sen. It was the biggest drop in history, surpassing the drop recorded the day after Black Monday in 1987. This is a fall of more than 10,000 yen from the high on July 11, leading to a global drop in stock prices. The main reason for this decline was the Bank of Japan’s interest rate hike, but what surprised the market was the press conference held by Bank of Japan Governor Kazuo Ueda. An expert explains. At a monetary policy meeting held at the end of July, the Bank of Japan raised its policy interest rate from 0-0.1% to 0.25%. The interest rate hike at this time was itself unexpected in the financial markets, but the real surprise was the comments made by Governor Ueda at the press conference after the meeting. “If our economic and price forecasts materialize, we will continue to raise policy interest rates accordingly,” he said. Why is this a “problematic statement”? A look at the Bank of Japan’s economic and price outlook makes it clear. At the same time as the press conference, the Bank of Japan released its “Outlook for Economic and Price Conditions (July 2012).” There is a document titled “Policy Board Members’ General Outlook for Fiscal Years 2024-2026,” which lists the Bank of Japan’s policy board members’ forecasts of real GDP and the consumer price index (compared to the previous year). The median forecasts for real GDP are +0.6% for FY2024, +1.0% for FY2025, and +1.0% for FY2026. The consumer price index is expected to increase by 2.5% in fiscal 2012, 2.1% in fiscal 2013, and 1.9% in fiscal 2014. These predictions are not particularly unusual. Economic forecasts from major think tanks show roughly similar figures. But that’s what makes it a big problem. ◆ Governor Ueda’s shift to a hawkish stance will see the policy interest rate rise to 1% at the end of next year.
Governor Ueda’s previous statement was a declaration that “if the Japanese economy progresses in line with this average forecast, we will continue to raise interest rates.” The hurdles for triggering an interest rate hike have become extremely low. Moreover, he stated that he does not consider the policy interest rate of 0.5%, a level that has not been exceeded in the past 30 years, to be a “wall.” “Forward guidance” is when monetary policy authorities announce their future monetary policy direction in advance, but it can be said that they have issued some outrageous forward guidance. As a result, interest rate outlooks in the stock and bond markets were forced to undergo significant revisions. The current scenario is for interest rates to be raised by 0.25% two or three times by the end of 2025, which would bring the policy rate to 0.75% if raised twice, and 1% if raised three times. When it comes to monetary policy makers, those who favor monetary easing are sometimes called “doves,” while those who favor monetary tightening are sometimes called “hawks.” The market had previously perceived Governor Ueda as a dove, but it appears he has now turned completely hawkish. Source below.
>>1 Prices are so high right now because America and Europe are giving out too many subsidies during the COVID-19 pandemic, leading to abnormal inflation that is now spreading to Japan. Inflation cannot be stopped by Japan alone because it is caused by factors outside of Japan. As a major importing country, prices in Japan will be dragged down by import prices and will eventually converge to a single point (similar to prices in Europe and the US), but the only way to get there is to approach it from above or from below. Japan has been in a state of deflation, which has kept price increases more subdued than in Europe and the US, but the overall rate of price increase has not yet reached those of Europe and the US. The reason why the yen is weak now is because America is raising interest rates to stave off inflation in the country, and the dollar is being bought in response to the higher interest rates. If inflation in the United States subsides, the United States will also begin to lower interest rates, and the weak yen will be resolved. If deflationary Japan were to raise interest rates, it would suffer the double whammy of a recession caused by slowing consumption and rising prices.
>>1 Until now, it has been foreign investors who have been pushing up the value of Japanese stocks. The exchange rate has returned to the level of six months ago, and Japanese stocks have been mechanically sold off due to portfolio reviews and changes to yen carry trades, returning them to the level of six months ago. The abnormal interest rates in the US will definitely be corrected at some point, so we will definitely see another global stock market crash regardless of the Bank of Japan’s interest rate policy.
The Middle East, the US economy, Harris Unfortunately, various events have come together and amplified the shock waves like a triangular wave If it had only been an interest rate hike, it wouldn’t have turned out like this.
Companies have also said that they are struggling with the weak yen 😡 Don’t be so selfish and say you don’t like the weak yen or you don’t like the strong yen 😡.
Abenomics, which has no substance, has simply failed. Monetary easing has allowed investment money to flow in, but what is the outcome of this so-called “investment”? It’s just that the yen has weakened.
>>19 This. The result is something that goes against the world. The reality is that the world will continue to tighten its policies from now on, and Japan will have no choice but to ease up before that happens, but it has done nothing until now.
Unprecedented monetary easing was a mistake to begin with. If it’s not corrected, Japan’s wealth will only be exploited by foreigners. Haruhiko Kuroda has made it a complete mess.
> “If the (BOJ’s) economic and price outlook comes true, we will continue to raise the policy interest rate accordingly.” Don’t talk about monetary policy outlook based on assumptions. The Ministry of Finance and the BOJ should do something about Ueda.
With a background like this, it’s only natural that the content would be like this. Interviewed and written by Kenji Matsuoka After working as a money writer, financial planner, and market analyst at a securities firm, he became independent in 1996. He writes articles on finance and asset management, mainly for business and economic magazines. His books include “Robo-Advisor Investing Textbook for the First Year” and “Easy to Understand with Plenty of Illustrations! A Book to Guarantee Benefit from Cashless Payments.”
Isn’t Ueda Kishida’s protégé? He’s always thinking about things like raising taxes, so things get all messed up. The people always make rational decisions.
Ueda has accepted the position of governor at a time when none of the elites want to take it. He’s doing a good job. Even if Ueda resigns, no one else at the current BOJ would want to take it.
Media and politicians: “What’s with this weak yen? Raise interest rates!” It’s embarrassing to be swayed by the media and politicians. If it were Kuroda, he would have at least ignored it with a smile on his face.
In Japan, stock prices are over 30,000 yen and the number of wealthy people is increasing. Those who work hard are victorious, and Japan is a very successful economic country.
Comments