MNI INTERVIEW: No BOJ Rate Rise Before Q1 2025 - Sakurai

MNI (TOKYO) - The Bank of Japan will not be able to further raise its policy interest rate before the first quarter of 2025, former BOJ board member Makoto Sakurai told MNI.

The BOJ’s tightening path is complicated by the fact that the Federal Reserve is adjusting policy in the opposite direction, towards easing, while Japanese financial markets have also been sensitised by the BOJ’s decision to stop buying exchange-traded funds, Sakurai said in an interview. Any further gains in the yen following its sharp appreciation from year lows above 160 in July to about 145 now would also put downward pressure on exporters’ profits and lower capital investment, he said.

“It should cautiously consider raising the policy interest rate as financial markets, particularly foreign exchange and stock markets, show a tendency to be volatile, judging from the current environment,” Sakurai said.

The yen is already at crucial levels for exporters, given that the BOJ’s June Tankan business sentiment survey showed an average predicted exchange rate for all firms of JPY144.77, he noted. (See MNI INTERVIEW: US Export Demand Key For BOJ Tightening- Sekine )

JULY SURPRISE

Sakurai said he had been taken by surprise by the decision to raise the unsecured overnight call loan rate by 15 basis points to 0.25%, its highest level since 2008, on July 31, when the BOJ also provided details of reductions of its bond purchases. The Bank would have been better advised to wait until wage date due in the autumn, he said, adding that officials were however swayed by the concerns of business leaders and lawmakers over yen weakness, even though the BOJ does not target the exchange rate.

While weak U.S. jobs data immediately following the rate hike added to volatility, the BOJ’s “sloppy communications” were the main trigger for the wild swings in asset prices, Sakurai said, pointing to hawkish remarks by Governor Kazuo Ueda, whose background is mainly in academia. (See MNI POLICY: BOJ Still On Course For Hikes Despite Volatility)

“Governor Ueda is a superior professor, and he is a person who tends to say everything honestly. Ueda tells everything too simply,” Sakurai said.

Ueda should have stressed that financial conditions will remain accommodative, even as excessive accommodation is removed, and should provide more details about his view of how the BOJ will eventually raise rates close to the neutral level, something which could take two or three years if this is at about 1%, Sakurai said.

“Ueda doesn’t need to specify any numerical levels but he needs to show his thinking about the neutral rate of interest rate,” Sakurai said.