On Tuesday, the Bank of Japan shocked the world by deciding to permit the benchmark interest rate to increase to 0.5% from 0.25%. As a result, the Japanese yen is up 3.42% against the US dollar. Since policymakers have maintained the yield on government bonds at or near zero since 2016, the Japanese central bank was one of the only institutions in the world to delay raising benchmark interest rates.
Rates are raised by the Japanese Central Bank for the first time in six years
The Bank of Japan’s (BOJ) governor, Haruhiko Kuroda, has been the subject of much discussion over the past two months because she will soon be replaced by a successor. On December 20, however, Kuroda stunned the world’s financial markets when he revealed that the BOJ would permit Japan’s 10-year bond yields to rise from the previous upper limit of 0.25% to 0.5%.
The action follows the mechanism for controlling the yield curve that the Japanese central bank unveiled in September 2016. To “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions,” the BOJ stated in a statement on Tuesday.
In an interview with CNBC, representatives from Mizuho Bank stated that the decision was made because they anticipated a future hawkish pivot from the BOJ. However, the financial institution elaborated on Tuesday that these hawkish bets might not pay off. Popular bet does not necessarily reflect policy reality or intended policy perception, according to Mizuho Bank.
Economist and gold enthusiast Peter Schiff anticipates another rate increase from the BOJ. Schiff tweeted, “The Bank of Japan blinked and pivoted in the opposite direction.” “The BOJ recently increased the target rate to.5% after artificially maintaining the 10-year JGB yield at.25 percent. There will be more hikes. This implies lower asset prices, a weaker dollar, and higher inflation in the United States.
According to Lavish’s tweet, “at this point, the Bank of Japan has pulled the goalie and is hoping for a last-second tying goal.” “Perhaps go into overtime. Maybe get it out in some way. But now they’re trailing 5-1. They just aren’t aware of it yet that the game is over.
The Japanese yen had gained 3.42% over the previous day and 4% over the previous five days as of 8:41 a.m. (ET). According to 30-day statistics, the yen has risen by 5.73% against the dollar. The yen is up 1.81% over the past six months and down 13.25% against the dollar so far this year, according to metrics.