Turbulent Stock Prices: BOJ Should Communicate Carefully with Markets

Editorial

16:29 JST, August 24, 2024

The phase of normalizing monetary measures comes with a risk of significant market volatility. It is hoped that the Bank of Japan will try to provide thorough explanations so as not to cause confusion.

Although the Diet is not in session, deliberations were held in both the House of Representatives and the House of Councillors on the subject of the financial markets, which have been in a state of historic volatility. At the deliberations, BOJ Gov. Kazuo Ueda spoke publicly for the first time since the latest market turmoil began, saying, “Markets remain volatile, and we will closely monitor them with an extremely high sense of urgency.”

Earlier, BOJ Deputy Gov. Shinichi Uchida had tried to calm the situation in an Aug. 7 speech, expressing his view that the central bank “will not raise interest rates while financial and capital markets are unstable.” Ueda, at the deliberations, made it clear that “there is no difference between myself and Deputy Gov. Uchida” in their way of thinking about monetary policy.

The financial markets seem to have generally taken the questions and answers in the deliberations calmly. Ueda needs to be very careful in his comments, paying attention to speculative movements as well.

On Aug. 5, the Nikkei Stock Average plunged 4,451 points, the largest fall in its history. The following day, Aug. 6, it turned around and had the biggest gain in its history. The yen temporarily surged to the level of ¥141 to the dollar.

The stock market plunge was largely due to U.S. employment statistics released on Aug. 2, which fell short of market expectations, intensifying concerns over a recession in the U.S. economy. Another factor is that there was also a sense of overheating in the stock markets in both Japan and the United States, and speculative movements intensified.

However, the press conference given by Ueda when the BOJ raised its policy rate to around 0.25% on July 31 may have also been a contributing factor.

This is because markets reacted with surprise that Ueda, who had so far indicated that he would persistently pursue an accommodative monetary policy, showed a stance of contemplating additional interest rate increases.

If significant market volatility continues, that could have a negative impact on investment by Japanese companies and consumer sentiment.

The BOJ intends to adjust the degree of monetary easing based on its judgment that the underlying trend of rising prices and the stability in the economy will continue. It is not in a hurry to raise interest rates. Thorough explanations should be provided on these points.

The Japanese economy is now in a phase that should focus on a transition from a “cost-cutting economy,” in which labor and other costs are reduced to sell products at lower prices, to a “growth-oriented economy,” in which both wages and investment increase.

It is important for the BOJ to proceed with the normalization of monetary policy in order to realize a vigorous Japanese economy.

Ueda emphasized that “the basic stance of adjusting the degree of monetary easing” in light of the economy and prices “will not change.” The BOJ is urged to carefully analyze the situation and determine the timing of policy changes.

(From The Yomiuri Shimbun, Aug. 24, 2024)