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Asian Investor features Mikio Kumada’s views on the Bank of Japan’s rate hike
In a recent article, Asian Investor discusses whether the Bank of Japan’s decision to raise interest rates to 1% marks a turning point for Asian economies. According to Mikio Kumada, Global Strategist at LGT Capital Partners, the Bank of Japan’s move and post-hike communications suggest that policymakers continue to exercise caution, both for domestic reasons and due to potential spillovers abroad.
Mikio highlights that Japanese long-term rates have effectively acted as a global floor. Consequently, higher Japanese government bond yields are likely to put upward pressure on rates across Asia and globally, feeding back into Japan.
However, Mikio points to several complicating factors. In particular, a stabilization of the Japanese yen would help contain imported inflation and support policy credibility. Higher short rates should be more effective in stabilizing the currency while helping to cap the rise in long-end yields.
Finally, the Japanese government has signaled its readiness to intervene in foreign exchange markets. In practice, yen support would likely require US Treasury sales, with spillovers into US long-end rates, as Mikio points out.
Read the article (behind paywall) here.
