On January 24, 2024, the Bank of Japan’s announcement of an interest rate hike caused significant market movements. By using a replay chart, we will reproduce these movements and consider the limitations of monetary policy and the impact of the lack of coordination between the government, the Ministry of Finance, and the Bank of Japan.
Chapter 1: Replay of the Market on January 24
The charts displayed are as follows: USD/JPY at the top left, EUR/JPY at the bottom left, Nikkei 225 at the top center, S&P 500 at the bottom center, Bitcoin/USD at the top right, and Gold at the bottom right. The replay started from midnight Japan time.
At 12:23 PM on January 24, the Bank of Japan decided to raise interest rates. This announcement led to significant fluctuations in financial markets.
Observing the USD/JPY chart, we see that after 11:00 AM, the yen appreciated from 156.5 to temporarily drop by about 1.5 yen. However, by evening, the yen depreciated again, ending around 156 yen. Meanwhile, the Nikkei 225 dropped by 600 points during the same period, temporarily falling below 40,000 but eventually rebounding by 800 points to close at around 40,500.
Revisiting the charts, although the official rate hike announcement was at 12:23 PM, USD/JPY had already started moving toward yen appreciation after 11:00 AM. There were significant fluctuations at the time of the announcement, resulting in a 150-pip yen appreciation. The EUR/JPY initially moved toward yen depreciation but later shifted to yen appreciation with a slight rebound. The movements before the announcement differed slightly between USD/JPY and EUR/JPY.
The Nikkei 225 showed an uptrend right after the market opened, but following the 12:23 PM rate hike announcement, it dropped by 600 points, temporarily falling below 40,000. However, it recovered and closed above that level. Expectations surrounding former President Trump’s policies led to a continuation in the S&P 500’s upward trend, with the rate hike having limited effects and not significantly impacting overall market sentiment.
Using verification tools with replay functions like this allows traders to review past market movements, making it easier to assess entry timings and market trends.
Chapter 2: The BOJ Alone Cannot Stop Yen Depreciation
As demonstrated by this rate hike, monetary policy alone cannot ensure overall economic stability. Close coordination among the government, the Ministry of Finance, and the Bank of Japan is essential.
The Negative Spiral
As the yen depreciates and import costs rise, raw material prices soar. This squeezes corporate profits, stagnates wage growth, and reduces household disposable income. As a result, personal consumption declines, domestic demand shrinks, and economic downturns occur. To prevent such negative spirals, it is crucial to balance monetary, fiscal, and economic policies effectively.
Roles of the Three Key Players
Government’s Role (Economic Growth and Domestic Demand Expansion):Support corporate growth through industrial policies, consumption stimulus measures, and tax reforms.Promote innovation and deregulation to offset the slowdown due to population decline.
Ministry of Finance’s Role (Fiscal Soundness and Stability):Maintain a balanced fiscal policy while avoiding excessive deficits.Address rising social security costs with sustainable fiscal strategies.
BOJ’s Role (Price Stability and Monetary Policy):Implement appropriate interest rate policies to achieve inflation targets.Maintain financial system stability and ensure liquidity.
The Importance of Cooperation
Without sufficient collaboration among these three entities, further yen depreciation could lead to rising import costs, increased household burdens, and corporate cash flow difficulties, resulting in a negative spiral. Monetary policy normalization cannot succeed without adequate support from the government and the Ministry of Finance.
Chapter 3: Was Abenomics a Success?
Abenomics is an example of relatively well-coordinated efforts among the government, the Ministry of Finance, and the BOJ. It is summarized in the following three pillars:
The Three Arrows of Abenomics
Bold Monetary Easing (Unconventional Easing):Aggressive asset purchases and ultra-low interest rate policies to achieve a 2% inflation target.
Flexible Fiscal Policy:Fiscal spending on infrastructure investments and growth industries.
Growth Strategy Promotion:Deregulation, employment reforms, and foreign capital attraction.
The Effects of Abenomics
As a result, Japan saw increased exports due to yen depreciation, job growth, and significant stock market gains. In particular, stock prices soared from pre-Abenomics levels, improving investor sentiment. However, the stock market growth primarily benefited large exporters and corporations, with limited benefits for local economies and small businesses.
However…
The 2014 and 2019 consumption tax hikes dampened domestic demand and slowed economic growth.
Had there been no tax hikes, higher domestic demand expansion could have been expected. However, securing cooperation from the Ministry of Finance made tax hikes unavoidable. This lesson highlights the importance of implementing economic policies at the right timing.
Conclusion: The Limited Effect of Rate Hikes and Future Direction
The recent BOJ rate hike had limited impact and failed to address the root cause of yen depreciation. Market movements remained temporary, reaffirming that collaboration among the three key entities is essential for real economic improvement.
Rather than relying solely on monetary policy, comprehensive reforms focusing on stimulating consumption, supporting SMEs, and expanding domestic demand are crucial.
A Turning Point for Democracy
Democracy is at a turning point. Globalism, excessive equality, and pacifism are being conveniently exploited. To protect the lives of Japanese citizens, national operations should focus on long-term economic growth rather than short-term results.
Moving forward, the government, Ministry of Finance, and the Bank of Japan should transcend their respective positions and cooperate with a “Japan First” perspective, implementing appropriate policies to ensure economic stability and growth.
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