Why Japan’s big rate hike was a resounding dud

TOKYO – Central bank rate moves rarely get metaphysical. But the way global markets ignored the Bank of Japan’s first tightening step in 17 years has traders asking: If a rate hike falls in a forest and no one is around to hear it, does it make a sound?

Triggering this famous thought experiment was the last thing Governor Kazuo Ueda probably expected on March 19, the day the BOJ made its second pass at ending 25 years of zero interest rates. It ended its negative yield experiment by raising the policy benchmark to 0%-0.1% from -0.1%.

Rather than skyrocketing, as some predicted, the yen has since weakened to 34-year lows. Instead of surging, 10-year Japanese bond yields are even lower today. Why, investors everywhere want to know, did the BOJ’s big pivot make no sound in trading pits around the globe?

One explanation is that the BOJ missed its window of opportunity. Had then-Governor Haruhiko Kuroda scrapped negative yields in late 2022 or early 2023, markets might have respected the move. Had Ueda acted soon after taking the controls in April 2023, investors might have listened up.

By waiting until Japan was skirting a recession and the US Federal Reserve was tamping down easing speculation, the BOJ got lost in the woods. Worse, it squandered even more credibility, the only real currency that matters in monetary authority circles.

Speculators are now calling its bluff, knowing full well that economic conditions are no longer conducive to BOJ tightening. Hence the yen’s decline over the last nine days — to levels that prompted Tokyo authorities to act in October 2022.

Government officials are rushing to the microphone to threaten intervention. Finance Minister Shunichi Suzuki says “we are watching market moves with a high