With the result of last week's interest rate decision by the US and Japan central banks, a series of volatile global financial markets were triggered from last Thursday to this Monday, and these two central banks are now clearly facing increasing questioning.
Many industry insiders believe that the two major central banks of the United States and Japan, one being extremely rigid in not cutting interest rates last week (the Federal Reserve), and the other being untimely in raising interest rates "recklessly" (the Bank of Japan), can almost be said to have jointly "directed" this global stock market crash
Industry questions the Bank of Japan's interest rate hike: Who gave you the courage?
Nobuyasu Atago, Chief Economist at Lotte Securities Economic Research Institute and former Bank of Japan official, stated on Monday that "the Bank of Japan needs to remain humble about economic data and markets
Faced with poor economic statistics, the Bank of Japan (inappropriately) raised interest rates, indicating that the Bank of Japan did not pay attention to the data at all, "Atago pointed out.
Bank of Japan Governor Kazuo Ueda repeatedly emphasized last week that the decision to raise interest rates was based on economic and inflation data showing development in line with previous expectations. He also stated that as long as this trend is maintained, interest rates will continue to rise.
However, yesterday's most severe stock market crash in decades has led many analysts to believe that the Bank of Japan prematurely pulled the trigger for interest rate hikes. Many industry insiders have also begun to change their expectations for further tightening by the Bank of Japan in the future.
Mari Iwashita, chief market economist of Daiwa Securities, pointed out that "this is an inappropriate interest rate increase. Before the Bank of Japan takes the next step, it must wait and see whether the U.S. economy is entering a recession or a soft landing. At least, it seems impossible to raise interest rates in September and October now."
The decision of the Bank of Japan to raise interest rates on July 31 helped the yen rebound significantly from a near decades low - the depreciation of the yen has dragged down the purchasing power of Japanese consumers in the past few years. However, now the rapid appreciation of the Japanese yen has clearly backfired - the yen has risen by over 10% against the US dollar in the past week, which has begun to hit the profit prospects of exporters and exacerbated the stock market crash.
Since Kazuo Ueda's predecessor, Haruhiko Kuroda, the Bank of Japan has been gradually withdrawing its monetary stimulus policy - before ultimately abandoning the yield curve control policy, the bank has repeatedly slightly expanded the tolerance range of this target. However, last Wednesday, when the Bank of Japan raised its benchmark interest rate to its highest point in over a decade, it also announced a "halving" of bond purchases - essentially equivalent to "tapering" - which some global observers see as a significant amplification of the Bank of Japan's monetary policy shift.
Some industry insiders speculate that the Bank of Japan's shift may be related to political pressure.
Atago said, "I cannot believe that there were no political factors behind this decision. I can only explain this as communication between the Japanese political arena and the central bank on how to deal with the weak yen. Japan's consumption and production data are too weak to justify a rate hike. Due to inflation eroding people's purchasing power, actual consumer spending has been shrinking in each of the four quarters ending in March
Last month, two senior officials of the ruling party in Japan made a rare comment on the Bank of Japan's policies before the decision was made. Among them, heavyweight figure and Secretary General of the Liberal Democratic Party, Toshimitsu Motegi, once stated that the Bank of Japan should more clearly express its intention to normalize its policies, while Japan's Minister of Digital Affairs, Taro Kono, expressed opposition to the weak yen when discussing the Bank of Japan issue.
Doubts about the Fed's procrastination in the industry: Do we have to 'see blood' to repent?
If the Bank of Japan is being questioned by the industry for raising interest rates too aggressively, the problem with the world's most important central bank - the Federal Reserve - is clearly that the interest rate cuts are too slow.
In fact, before last week's interest rate meeting, many well-known market figures had actually called for the Federal Reserve to cut interest rates in July. Among these people, there are even senior retired officials of the Federal Reserve, such as former Vice Chairman Alan Blinder and former New York Fed Chairman William Dudley. However, Federal Reserve Chairman Powell ultimately did not rush to do so as usual.
But now, a series of bad economic data and consecutive days of sharp declines in the US stock market have even led industry insiders to speculate that the Federal Reserve may urgently cut interest rates under pressure before its regular meeting in September.
On Monday, during the most severe financial market crash, the probability of the Federal Reserve urgently cutting interest rates before the September meeting was predicted to be close to 20%. Wharton School professor Jeremy Siegel said in an interview on Monday that the Federal Reserve should quickly cut interest rates by 75 basis points after last Friday's employment report, and then cut interest rates by another 75 basis points at the September meeting. He stated that the current federal funds rate should be around 3.5% -4%.
Allianz's Chief Economic Advisor, Erian, also pointed out that the disappointing July employment report has sparked soaring concerns about a recession, and the market is now "screaming" for two things: growth panic and the Federal Reserve's policy mistakes. I am truly concerned that we may lose the economic exception status of the United States due to policy mistakes
We introduced yesterday that the classic "Taylor's Law" model shows that the current benchmark interest rate of the Federal Reserve is about 1.7 percentage points higher than the reasonable level - which is equivalent to the Fed being "seven beats" slow in cutting interest rates, as it should have cut interest rates seven times at this stage, each by 25 basis points.
Anyway, behind the Fed's prolonged inaction, the biggest "victims" are not only the vast number of investors who have suffered losses as a result, but also the Democrats who urgently need encouragement before the election. On Monday of this week, Republican presidential candidate Trump also took advantage of the sharp decline in the US stock market to build momentum for himself and fiercely criticized Democrats. As soon as the former US president woke up on Monday, he began to exclaim on his own social media platform that "the US stock market has collapsed".
Trump further stated that it is only natural for there to be a large-scale stock market decline now, and the next step is the '2024 Great Depression'. To help his audience understand, he also coined a condensed slogan for this passage: Trump Cash and Kamala Crash.
Given that Democrats have previously sent multiple open letters to Powell, calling for an early interest rate cut. Powell, whose presidency is becoming increasingly hot, will obviously face more anger from Democrats