For academics and policymakers gathered at the U.S. Federal Reserve’s annual economic conference in Jackson Hole to debate how central banks can influence market perceptions of the stance of monetary policy, it appears the Bank of Japan was right in July when it raised interest rates for a second time.
In March, the BOJ finally managed to end eight years of negative interest rates. The following month, it began hinting that it would begin steady rate hikes if inflation remained on track to meet forecasts.
The message was ignored by markets until last month, when the BOJ backed up the hawkish signaling with action, raising short-term interest rates from 0-0.1% to 0.25% in a surprise move that set in motion a global unwinding of carry trades that had been financed for the better part of a decade by ultra-cheap Japanese yen.
