The Bank of Japan won’t be able to raise the policy rate again this year, given the market turmoil that followed its recent hike and the low likelihood of the nation’s economy seeing a rapid recovery, according to a former board member.

“They won’t be able to hike again, at least for the rest of the year,” former board member Makoto Sakurai said in an interview late Friday. “It’s a toss up whether they can do one hike by next March.” 

The recent market upheaval and the BOJ’s reaction to it are making market participants wary about the outlook. The overnight index swap market is showing a much lower likelihood of a rate hike by the end of the year, compared to immediately after the BOJ’s move in July. Sakurai also remains cautious.

“In the process of returning to normal monetary policy, it’s good that they decided to move from a world of almost zero interest rates to a normal 0.25%,” Sakurai said. But the move required so much energy that “they should wait and see for a while” regarding further hikes, he added. 

The central bank’s communication is coming under scrutiny amid the market turmoil that followed its July 31 decision to increase the policy rate to 0.25% from a range of 0 to 0.1%. 

Governor Kazuo Ueda’s hawkish tone for additional rate hikes has been viewed as helping the yen surge, along with concerns over the US economy. Japanese stocks also suffered the worst crash since 1987, which prompted Ueda’s deputy to reassure investors by promising not to raise the rate when markets are unstable. 

“Uchida’s remarks were appropriate because market stabilization is very important now,” said Sakurai, who told Bloomberg in April that he expected the next rate hike to come in the fall, and a steady policy normalization process to start next year. 

At the same time, Sakurai criticized Ueda’s communication style at the July 31 press conference. 

“It’s important to bring questions into your own turf so you can make the points you want to make, but Ueda hasn’t controlled the situation well,” Sakurai said. “The BOJ is moving from excessive monetary easing to appropriate monetary easing, and the biggest problem is that Ueda failed to communicate firmly they will maintain easing. That’s always been a condition they’ve kept.” 

Without that explanation, Ueda ended up giving an impression that he’d “raise the interest rate more and more,” Sakurai said. 

“Academic economists tend to be too forthright because the answers can be found in numbers,” Sakurai said. “But the actual economy is not that simple. So authorities also need to feel their way and navigate the reality.” 

The BOJ’s decision has caused criticism from Japan’s main opposition party. As the nation’s markets reopen after a public holiday on Monday, a parliamentary committee will meet on Tuesday to decide when Ueda and Finance Minister Shunichi Suzuki will be called in for questioning.

This week also marks Japan’s so-called Obon, a period when Japanese take time off to honor ancestors. While BOJ officials are not scheduled to speak publicly, the government is set to release its reading of second quarter gross domestic product on Thursday. Analysts expect a rebound following a contraction. 

Leading up to the July decision, the BOJ faced unusual political pressure. Two senior members of the ruling party weighed in on BOJ policy and the weaker yen, seemingly pressing for a hike that would support the currency. 

“Now you know that this is what happens to the markets when you overstep the line,” Sakurai said about lawmakers and business people who called for the rate hike publicly. 

  - Bloomberg