The Bank of Japan is still in a position to hike rates again by the end of the year given that recent market turmoil hasn’t had a lasting impact, according to a former senior official at Japan’s financial watchdog.
“Although the market experienced some turbulence in the past one, two months, I do not think that there is a loss of confidence in the markets,” said Tomoko Amaya, speaking on the sidelines of the Bund Summit in Shanghai at the weekend.
“What is important is not the level of the equity price, or the level of the turbulence, but the level of the confidence,” she said, adding that there was a sufficient return of stability to keep a rate hike on the table this year and that higher rates would benefit banks.
Following last month’s market turmoil, Bank of Japan Deputy Governor Shinichi Uchida said the central bank won’t hike rates when markets are unstable. Since then, Governor Kazuo Ueda has backed up his deputy’s stance, while also making the point that the BOJ will continue to raise rates if data show the economy and prices in Japan are following the central bank’s outlook.
Amaya was a senior official at Japan’s Financial Services Agency, a regulatory group tasked with overseeing banks and other financial institutions, and ensuring the stability of the country’s financial system. She was the first woman to be appointed vice minister for international affairs in 2021, making her a rare example of a female bureaucrat ascending through the agency’s ranks. She’s now an executive adviser at Norinchukin Research Institute.
Most BOJ watchers see the central bank raising rates again by January provided there’s no return to the market instabilty seen in early August.
If the BOJ were to take that step, Amaya said banks in Japan would benefit through a boost to their profit margins. Still, the pace of the rate hikes would be a more important cause for concern than the level itself, she added.
“Many banks are adjusting themselves and their portfolios in order to meet the challenge of the rate raises,” said Amaya. “I think there’s still some room for rate raising. And they can benefit from that part of the higher interest rate.”
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