Coincidence?
On Tuesday September 3 Bank of Japan Governor Kazuo Ueda reiterated that the central bank will continue to raise interest rates if inflation continues in Japan.
And on Tuesday U.S. stocks plunged.
Sure seems like a replay of the August rout when U.S. markets fell as the Bank od Japan raised interest rates, the yen gained, and traders looked to close speculative yen carry trade bets by selling dollar-denominated assets in order to pay back yen loans that threatened to get more expensive with a rising Japanese currency.
The yen firmed against the dollar following the release of the comment, and then continued to gain ground to briefly reach 145.61 at around 5:36 p.m. in Tokyo.
The comments reminded traders that despite the meltdown in global markets that was partly triggered by the BOJ’s July rate hike, Ueda remains committed to raising borrowing costs if inflation remains in the bank’s danger zone.
Around two-thirds of economists surveyed by Bloomberg in August after the slide in markets that month still see the BOJ moving again by the end of the year with 41% of respondents flagging December as the most likely month for the move.
The all-items inflation rate in Japan was 2.8% as of July 2024. The 2.8% inflation rate has held steady for three consecutive months. (It is the highest inflation level Japan has seen since February 2024.) Even more worrying to the central bank, in my opinion, the core inflation rate, which excludes fresh food prices but includes fuel costs, increased to 2.7%.
