Japan's drastic measures
2024-08-06
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After Japan said goodbye to the era of negative interest rates in March, it unexpectedly raised interest rates to 0.25% last week. "The Bank of Japan's decision is closely watched by investors and economists in Japan and abroad." The New York Times reported that there are signs that the weak yen has been suppressing the spending power of Japanese consumers. The Japanese economy has shrunk in two of the past three quarters, coupled with an uncertain economic outlook, making Japan's choice to raise interest rates at this point controversial. Some experts believe that Japan has reached the point of raising interest rates, but the impact of this key monetary policy shift remains to be seen.
From bonds to gold, everything is affected
On July 31, the Bank of Japan announced that it would raise its target interest rate from around 0-0.1% to 0.25%, marking its second rate hike since abandoning negative interest rates in March.
After the unexpected rate hike, the yen began to appreciate and the Japanese stock market began to plummet. As of the close of August 5, the Nikkei 225 index closed down 12.4%, wiping out all gains since the beginning of this year. Under the drag of the Japanese stock market, the Korean and Turkish stock markets were circuit-breakers, and stock markets in many countries plummeted.
On the same day, Japan's Chief Cabinet Secretary Yoshimasa Hayashi said,We do not comment on daily stock market fluctuations and are closely monitoring financial situations at home and abroad.
Japanese Chief Cabinet Secretary Yoshimasa Hayashi made a speech on the Japanese stock market crash on the 5th. (Visual China)
Historically, after Japan exited its loose monetary policy, the Japanese stock market has shown a downward trend.According to a recent research report from West China Securities, during the two rounds of interest rate hikes in 2000 and 2006-2007, the Nikkei 225 Index fell by about 20% and 40% respectively.
As an important low-interest financing currency in the world, the interest rate hike of the Japanese yen was not fully anticipated by the market in advance.Bloomberg reported that the Bank of Japan's policy shift had wide-ranging implications for global markets, ranging from bonds to gold and Bitcoin.
The Wall Street Journal reported that the Federal Reserve's interest rate decision last Wednesday was naturally the focus of everyone's attention, but the meeting of the Bank of Japan across the Pacific also had considerable influence.
It is rare for two major central banks to be at an important turning point in their long-term policy settings at the same time. Even rarer is for their policies to go in opposite directions, with consequences that could be far-reaching and unpredictable.Investors around the world must develop the habit of paying more attention to Japan's developments in addition to the United States.
The timing of the rate hike is under question
Since the Bank of Japan raised interest rates last Wednesday,Japan's Toyota Motor's stock price fell in the next three trading days, falling as much as 8% last Friday. This happened just after Toyota released its latest performance report, with record profit growth in the second quarter.
The Financial Times reported that:The yen's prolonged weakness not only makes Toyota's exports more competitive overseas, but also increases the repatriated value of its profits earned outside Japan.。
but now,The greater risk is that the Bank of Japan may continue to raise interest rates in the future, and the profit boost brought by the weak yen to Japanese export companies may not last long.In anticipation of this, Japanese export company stocks were sold off in large quantities by investors last Thursday.
Zhang Jifeng, a researcher at the Institute of Japanese Studies of the Chinese Academy of Social Sciences, believes thatThe impact of Japan's interest rate hike will also affect Japan's imports, foreign investment in Japan, domestic price trends and even the development of the entire Japanese economy.
Zhang Jifeng further stated,The biggest controversy is whether it is appropriate for the Bank of Japan to choose now to raise interest rates and end its long-term loose monetary policy.
Zhang Jifeng said,"Japan has long relied on low interest rates to stimulate its economy. In order to boost the yen, it has intervened through market operations in the early stage. Now raising interest rates is tantamount to adding another dose of strong medicine. The impact on the Japanese economy is still not small. It may cause an interruption in economic recovery and lead to increased unemployment, etc."
Last Wednesday, Bank of Japan Governor Kazuo Ueda said at a press conference after the interest rate meeting that Japan's economy is gradually recovering and the speed is expected to remain above the potential growth rate. His "hawkish" speech implied optimism about the Japanese economy.
But according to the Financial Times, two members of the Bank of Japan's monetary policy committee raised objections, with one member directly questioning whether the Japanese economy supports interest rate hikes.UBS Group AG’s chief Japan economist called it extremely disappointing that the Bank of Japan chose to act despite weak economic data and warned that it made an already precarious economy even more difficult.
Chen Zilei, vice president of the National Association of Japanese Economics and director of the Japan Economic Center of Shanghai University of International Business and Economics, said in an interview with the Global Times:There are differences within the Bank of Japan's monetary policy committee on raising interest rates.However, Japan's inflation level has remained above 2%, giving the Bank of Japan sufficient policy basis to raise interest rates. Especially when the Fed's interest rate cut expectations are relatively clear in September, Japan's window for raising interest rates against the trend will be fleeting. This is the main reason for the Bank of Japan to raise interest rates.
Accelerate the industry's "elimination of false and retention of true"
A recent research report from Northeast Securities shows thatJapan's interest rate hike will have different impacts on residents, businesses and the government.
The interest rate hike may lead to an increase in residents' deposit interest and improve their asset income; enterprises will be more affected by liabilities, and the financial costs of small and medium-sized enterprises will increase due to rising interest rates; government departments will not be affected by the interest rate hike. The fiscal sustainability will also be significantly reduced.
According to reports,On July 31, Japan's largest bank, Mitsubishi UFJ Bank, decided to raise its short-term benchmark interest rate from 1.475% to 1.625% starting September 2. This is the first time the bank has raised the interest rate since March 2007.Other Japanese banks and regional lenders are expected to follow suit.
Chen Zilei told the Global Times reporter,The interest rate hike will lead to an increase in the cost of living, but at the same time, deposit interest will also increase.This means that the mortgage costs for young people in Japan will increase, while the elderly, the main group of depositors, will benefit from the increase in deposit interest and improve their quality of life.
He said,"Most people who pay their mortgages are salaried workers. Their increased financial pressure may affect their living expenses, which will have a negative impact on Japan's consumption expectations."
As for the impact on businesses, Bloomberg believes that Japanese exporters have previously benefited the most from the weak yen, and the appreciation of the yen will lead to losses in overseas earnings; in addition, interest rate hikes also mean higher financing costs for businesses.
The Nikkei Asian Review said that most Japanese companies expect that the interest rate hike will not have much impact on their operations, but rising financing costs and a stronger yen are still mixed blessings for companies.
Chen Zilei believes that overall, the interest rate hike by the Bank of Japan has caused a strong shock in the financial market, but it has not yet been transmitted to all aspects of the macro-economy. Therefore, its impact still needs time to be further observed. However, he believes thatEvery appreciation of the yen is accompanied by the expansion of Japanese companies' overseas investment, which is beneficial for China to attract foreign investment.
Source: Global Times
