Bank of Japan's Rate Hike Sparks Global Stock Market Plunge: Criticism Mounts

The Bank of Japan's recent decision to raise its benchmark interest rate has led to a sharp decline in both Japanese and global stock markets

The Bank of Japan's recent decision to raise its benchmark interest rate has led to a sharp decline in both Japanese and global stock markets. This has resulted in a wave of criticism directed at the Bank of Japan. Experts argue that the timing of the rate hike was inappropriate and suspect that political pressures may have influenced this decision.

The Bank of Japan's decision to increase the benchmark interest rate last week has triggered a significant drop in stock markets worldwide. The Nikkei 225 index plummeted more than 12% within five days, marking a historic market crash. Amid this turmoil, criticism of the Bank of Japan's rate hike decision has intensified.

According to Bloomberg, Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and a former Bank of Japan official, criticized the central bank for not adequately considering economic indicators and market conditions. Atago stated, "The Bank of Japan should be humble about economic indicators and the market. Raising rates in a situation where the indicators are not good means they did not pay attention to the statistics."

Kazuo Ueda, the Governor of the Bank of Japan, defended the decision by stating that the economic and inflation data matched expectations. He reiterated that as long as this trend continues, interest rates will continue to rise. However, experts have begun to believe that the rate hike was premature. Mari Iwashita, chief economist at Daiwa Securities, stated, "It was not a timely rate hike. Now, the Bank of Japan needs to wait and see whether the U.S. economy enters a recession or achieves a soft landing before taking further action. Discussing another rate hike in September or October will be difficult."

Some experts speculate that political pressure played a role in the rate hike decision. Atago suggested, "It is hard to think that political factors were not at play here," interpreting the decision as a result of communication between the political sphere and the Bank of Japan to address the weak yen. Atago analyzed that consumption and production indicators were too weak to justify raising the rates.

Indeed, two senior politicians from Japan's ruling party made unusual comments about monetary policy ahead of last month's rate decision. Toshimitsu Motegi, secretary-general of the ruling Liberal Democratic Party, urged in a speech on July 22, "We need to make it clearer that we will normalize financial policies, including considering a step-by-step rate hike." Additionally, Taro Kono, Minister for Digital Transformation and a potential prime minister candidate, also called for a rate hike in an interview with Bloomberg, stating, "The yen is too cheap."

The Bank of Japan's recent rate hike decision has significantly impacted global stock markets, leading to widespread criticism. Experts argue that the central bank failed to sufficiently consider economic indicators and that political pressures may have influenced the decision. As we move forward, it will be crucial to monitor the Bank of Japan's response and the broader implications for the global economy.