Stock market today: Dow rises 400 points, Nasdaq gains 1.8% as markets continue risk appetite recovery
A senior official at Japan’s central bank was credited with further reassuring investors on Wednesday by suggesting that policymakers would take market conditions into account when considering further rate hikes.
This could also place a responsibility on the Federal Reserve to lay the groundwork for an eventual signal that rate cuts are imminent to ensure a soft landing, argued Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, in a note.
Speaking to business leaders in northern Japan, Vice Governor Shinichi Uchida said Japan is not in the same situation as the United States and Europe a few years ago, when central banks there raised interest rates aggressively. “That’s why the bank will not raise its benchmark interest rate when financial and capital markets are unstable,” he said, according to the Wall Street Journal.
An unexpected interest rate hike was followed on July 31 by aggressive comments from Uchida’s boss, BoJ Governor Kazuo Ueda, and was blamed for the global stock market collapse.
Uchida’s comments were seen as helping to fuel a further rally in Japanese stocks after the Nikkei 225 posted its biggest one-day loss since 1987 on Monday and the Japanese yen weakened. The unwinding of the Japanese yen carry trade has been blamed for volatility in global markets. U.S. stocks fell sharply on Monday, and the S&P 500 suffered its biggest one-day loss in nearly two years. Stocks have recovered some of those losses, and futures pointed to a higher start on Wall Street on Wednesday morning.
“We think this means the BOJ will not raise interest rates again until December at the earliest, and probably not before 2025. Further, much more cautious tightening is only possible if the US can avoid a recession. If the US goes into recession, there will be no further rate hikes in this cycle,” Guha wrote.
“But we now expect the Fed to step up a little more in the coming days to build the bridge to Jackson Hole and for (Chairman Jerome) Powell to give a clear signal that the Fed will bring forward some easing measures to ensure a soft landing. The extent of this easing will depend on the next set of labor market data,” he said.
