Bank of Japan Gov. Kazuo Ueda raised interest rates to the highest level since 2008, avoiding market turmoil by carefully signaling his plans to investors. But that strategy carries its own risks.
Ueda and his board hiked the overnight policy rate to 0.5% on Friday in a move that was almost entirely priced in by traders. The decision left little more than a shallow ripple in global markets, with the yen strengthening slightly against the dollar. Investors are preparing for more hikes to come and the prospect that Japanese rates may reach 1% or more by next year, or even sooner.
The relatively smooth reaction contrasts with the market mayhem that followed a far less telegraphed BOJ rate increase at the end of July. Ueda’s move then was blamed by some for triggering the biggest daily fall on record in the Nikkei 225 stock indexf and a confidence-sapping slump in markets around the world including U.S. equities.
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