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(Bloomberg) — BlackRock Inc. portfolio manager Rie Shigekawa highlighted risks to the yen if the Bank of Japan fails to prepare the market for a June interest-rate hike at the next policy meeting.
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Market expectations for the central bank to raise rates next week have diminished since the Middle East conflict broke out, Shigekawa said at the Bloomberg New Voices event in Tokyo on Thursday. So it will be key for Governor Kazuo Ueda to send the message that his policy board remains committed to rate hikes as soon as June, she said.
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“If he doesn’t do that right, then there’s definitely a risk to the currency,” Shigekawa said. Still, she added, “the market feels very comfortable that their next move is coming up in June.”
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The Bank of Japan is leaning toward keeping its policy rate unchanged next week, with officials still committed to raising borrowing costs sooner or later, people familiar with the matter said this week. A majority of economists are now betting the next rate increase will come in June, according to a survey by Bloomberg News.
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Former Bank of Japan policy board member Sayuri Shirai flagged the same risk to the currency. Next week would provide a good opportunity for the central bank to raise rates to stem an “extremely cheap yen” that is hurting households’ purchasing power, she said on the same panel.
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“If they are going to postpone, let’s see what will happen to the market sentiment,” said Shirai, a professor of economics at Keio University in Tokyo. If the market concludes that the BOJ is falling behind the curve and unwilling to raise rates, that would be a trigger for a cheaper yen, she said.
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The yen is trading at around 159.7 per dollar, and further weakness in the currency could add to inflationary pressures that are building as energy costs rise as a result of the Iran conflict.
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Both women said they were surprised in the Bank of Japan’s shift in communication in recent weeks, even as the outbreak of war in the Middle East increased uncertainty over the economic outlook.
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—With assistance from Lisa Du.
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English (US)