Investors react to BOJ’s interest rate hike
2024.07.31 00:48
(Reuters) – The Bank of Japan said on Wednesday it is raising its short-term interest rate to 0.25% and will gradually reduce the amount of bonds it is buying under its quantitative easing programme.
At the end of its two-day policy meeting, the central bank said the decision to raise its policy rate was unanimous and the amount of bonds it buys per month will fall to 3 trillion yen ($19.65 billion), half the current rough target, by early 2026.
Yields on government bonds fell slightly on the news, while the yen kept its early gains against the dollar.
QUOTES:
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“Bots were quick to bid the yen on the surprise of a 15-basis-point hike, but gains were just as quick to evaporate on the hollow headline numbers.
“Yes, the BOJ hiked more aggressively than the 10bp expected, but they fell short on their ‘detailed plan’ of tapering.
“And in the grand scheme of things, the 15bp hike still takes their interest rate to 25bp. I suspect the yen will weaken heading into the FOMC meeting later today.”
FRED NEUMANN, CHIEF ASIA ECONOMIST, HSBC, HONG KONG
“The BOJ took the plunge. Despite sluggish consumer spending, monetary officials sent a decisive signal by raising interest rates and allowing for more gradual balance sheet reduction. Despite sluggish consumer spending, rising wages are offering room for optimism that growth will recover in the coming quarters. Rising inflation expectations also open the path for ongoing monetary policy normalization by the BOJ. Barring major disruptions, the BOJ is on course to tighten further, with another interest hike by the start of next year.”
MARCEL THIELIANT, HEAD OF ASIA-PACIFIC, CAPITAL ECONOMICS, SINGAPORE
“The bank sounded more confident that a virtuous cycle between prices and wages is underway as it noted that moves to raise wages have not only been observed at large firms but have been spreading across regions, industries and firm sizes. The bank argued that there’s has been a strengthening of moves to reflect wage increases in selling prices. All this is consistent with our view that the bank will deliver another rate hike at its October meeting.
“However, in contrast to what financial markets are pricing in, we don’t foresee any further hikes next year as underlying inflation will fall below the bank’s 2% target due to falling import costs.”
MIKI DEN, SENIOR JAPAN RATE STRATEGIST, SMBC NIKKO SECURITIES, TOKYO
“Compared with the scale of reduction in JGBs for maturities less than five years, the cuts in bond purchases for 5-10 years were smaller, which indicate the BOJ’s willingness to contain the rise in the 10-year JGB yield. The yields on shorter maturities will tend to rise as a result of the new purchase plans, and that means the yield curve will flatten.”
IZURU KATO, CHIEF ECONOMIST, TOTAN RESEARCH
“The decision to raise interest rates came likely to correct excessive monetary easing reflecting the real policy rate that slides deep into negative territory.
“Although the BOJ had explained all along that monetary policy was not targeting currencies, the weak yen must be a major factor behind today’s decision given that it dealt a blow to SMEs in rural Japanese regions.
“You can say that the extent of the rate hike was rather small and symbolic. There’s no need to fret about accelerating rate hikes, as the BOJ’s rate hikes in March and July together reached an extent an ordinary central bank does in one go. It doesn’t mean that the BOJ has turned hawkish all of sudden. Going forward, the BOJ will remain cautious against tightening policy too hastily.”
VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE
“The BOJ’s rate hike and reduction of its balance sheet was widely anticipated, and the yen has reacted with sharp gains against the dollar in the past three weeks already. Whether we will see further gains now depends on whether Governor Ueda adopts a hawkish tone and offers clear forward guidance at the press conference.
“It is hard to see Ueda going full-on hawkish given the recent mixed economic data from Japan. Much also hinges on what the U.S. Fed says and does after its policy meeting today. If the U.S. central bank takes a stronger dovish tilt it could cause some dollar weakness and consequently cause the yen to strengthen against the greenback.”
($1 = 152.6500 yen)
