TOKYO/LONDON: Two completely opposite approaches are on display with the Bank of Japan (BOJ) likely keep interest rates ultra-low while the UK’s central bank going for another rate hike, as the world grapples with the current economic crisis – which was ignited by the Covid pandemic and later exacerbated by the Russia’s invasion of Ukraine.
In this connection, Reuters in a report says the Bank of Japan will likely keep interest rates ultra-low on Friday and reassure markets that monetary stimulus will stay, at least for now, as China’s economic woes and the global fallout from US interest rates cloud the outlook.
On the other hand, it is expected that the Bank of England will hike interest rates once again this week, possibly the last hurrah for one the great tightening cycles of the last 100 years as a cooling economy begins to worry policymakers, Reuters said in a separate news item.
Last week, the State Bank of Pakistan kept its key interest rate unchanged at 22 per cent, surprising analysts who had been expecting it to try to tame inflation and support the rupee with an increase of at least 150 basis points.
As far as Japan is concerned, Reuters says with rising raw material costs also keeping Japan’s inflation above their 2pc target for more than a year, BOJ policymakers are increasingly talking up the need to shift away from the massive stimulus of the past decade.
Given uncertainty over the wage outlook, however, there is no consensus within the BOJ on when and in what order the bank ends negative short-term interest rates and a bond yield cap, say three sources familiar with its thinking.
Many central bank policymakers prefer to hold fire until there is more clarity on whether Japan’s fragile economy can weather the hit from slowing US and Chinese demand, they say.
“Uncertainty over the global outlook is very high, posing a huge risk to Japan’s economy,” one of the sources said.
“The outlook for the global economy, particularly that of the United States, is crucial in determining whether Japanese companies can keep hiking wages next year,” another source said.
At the two-day meeting ending on Friday, the BOJ is widely expected to maintain its short-term interest rate target of -0.1pc and that for the 10-year bond yield around 0pc.
