BOJ Deputy Plays Down Fed Rate Hike Risk to Markets

Bank of Japan Deputy Governor Kikuo Iwata on Tuesday played down any risk that expected interest rate increases by the U.S. Federal Reserve or the Bank of England could pose to financial markets, and dismissed suggestions that the BOJ should raise rates to prevent the yen from falling too fast.

Iwata, speaking at the upper house financial affairs committee, acknowledged there was a chance currencies could react to such rate hikes but noted that foreign exchange markets may have fully priced in expected interest rate increases.

An interest rate hike in the United States or Britain would be an important step in returning monetary policy to normal after the U.S. subprime mortgage crisis, but some investors worry the normalization process could disrupt financial markets.

“I don’t see these moves as a risk,” Iwata said.

“It could be fully priced in. In that case, there wouldn’t be much reaction. Central banks conduct monetary policy for price stability, not for currencies.”

Economists and investors are eyeing Fed meetings scheduled for September and December as the most likely timing of the first rate hike in nearly a decade.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza