The Japanese yen is up 3.42 percent against the U.S. dollar on Tuesday as the Bank of Japan surprised the world by deciding to raise the benchmark interest rate from 0.25 percent to 0.5 percent. Japan’s central bank is one of the only banks in the world to refrain from raising benchmark interest rates, as policymakers have kept the yield on government bonds close to zero since 2016.
Japan’s central bank raises rates for the first time in 6 years.
Over the past two months, Bank of Japan (BOJ) Governor Haruhiko Kuroda has been the subject of much discussion, as the BOJ chief will soon be replaced by a successor. However, Kuroda shocked global markets on Dec. 20 when he detailed that the BOJ would allow Japanese 10-year bond yields to rise to 0.5 percent from the previous upper limit of 0.25 percent.
The move follows the yield curve control mechanism that the Japanese central bank introduced in September 2016. The BOJ explained on Tuesday that the change is intended to “improve market functioning and encourage a smoother formation of the entire yield curve, while maintaining accommodative financial conditions.”
Mizuho Bank officials said in an interview with CNBC that the move reflected the belief that the BOJ would make a hawkish pivot in the future. However, those hawkish bets may not materialize, the financial institution said Tuesday. “A popular bet doesn’t mean it’s the political reality or the intended political perception“, Mizuho Bank added.
Goldman and economist Peter Schiff is betting that the Bank of Japan will raise rates again. “The Bank of Japan has blinked and pivoted in the opposite direction,” Schiff tweeted. “After artificially holding the 10-year JGB yield at 0.25%, the BOJ just raised the target rate to 0.5%. More hikes are to come. In the U.S., that means the dollar and asset prices will fall and inflation will rise.” James Lavish, hedge fund manager stated: the BOJ has been trying to achieve one last goal.
At this point, the Bank of Japan has pulled the goalie and is hoping for a last-second tying goal. Maybe get to overtime. Maybe somehow pull it out. Except they’re down 5-1. The game is over, and they just don’t know it yet.
– James Lavish (@jameslavish) December 20, 2022
“At this point, the Bank of Japan has pulled the goalie and is hoping for a last second equalizer“, Lavish tweeted. “Maybe go into overtime. Maybe somehow they’ll get out of it. Except they’re down 5-1. The game is over, and they don’t know it yet.“
As of 8:41 a.m. ET, the Japanese yen was up 3.42 percent against the U.S. dollar over the past 24 hours and 4 percent over the past five days. The 30-day statistics show that the yen has also gained 5.73 percent against the greenback. The six-month statistics show that the yen is up 1.81% and year-to-date the yen is down 13.25% against the dollar.