The Bank of Japan has stated that it will not raise interest rates during periods of market instability. This decision was confirmed by Deputy Governor Shinichi Uchida on Wednesday.
What Happened: Uchida highlighted the impact of a stronger yen on the BOJ’s policy decisions, as it reduces the upward pressure on import prices and overall inflation, reported Reuters.
He also noted that stock market volatility could influence corporate activity and consumption, further affecting the central bank’s decision-making process.
Uchida emphasized the necessity of maintaining the current levels of monetary easing due to the sharp volatility in domestic and overseas financial markets.
He also stated that the BOJ’s interest rate path would “obviously” change if market volatility affects its economic and price outlook, its view on risks, and the likelihood of durably achieving its 2% inflation target.
“We won’t raise interest rates when financial markets are unstable,” Uchida said.
Why It Matters: This announcement comes in the wake of a major selloff in global markets, which was attributed to the unwinding of the Japanese yen “carry trade” caused by the BOJ’s decision to raise interest rates, according to Jim Bianco, founder of Bianco Research.
The Nikkei 225 index experienced its largest drop in decades, with the Dow Jones Industrial Average and the S&P 500 also suffering significant losses.
Just a week before the selloff, the BOJ had increased its benchmark interest rate and announced plans to reduce its bond purchasing program.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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