Japan’s Surprise Rate Hike Shocks U.S. Markets, Signals Global Shift Towards Tighter Monetary Policies

(KNSI) — A surprise interest rate hike in Japan sent American stock markets reeling.

Unlike the United States, where our central bank raised rates to over 5.25%, Japan was still at zero. Economist and director of the Center for Policy Research and Community Engagement at St. Cloud State University, King Banaian, says Japan is now trying to catch up to the rest of the world.

“The Bank of Japan has backed itself into a position where they have to convince markets that they are serious about inflation, where it has for the first time in many, many, many, many years picked up, and they’re trying, in essence, to renormalize.”

It has become common for investors to borrow in Yen essentially for free and invest in riskier assets that generated a higher return overseas. Banaian says that even though the benchmark rate only was moved up to 0.25%, that’s enough to create problems.

The interest rate hike led the Yen to strengthen against the United States Dollar. That led to a rotation from momentum and growth stocks like what are found in the technology towards safer options like healthcare and Wal-Mart or other financial assets classes like treasury bonds.

Banaian says a slowing U.S. economy is also partly to blame. He thinks markets shifted focus from the allure of artificial intelligence to rising unemployment and unhappiness with the direction of the economy on Main Street.

“I think we’re validating the fact that people have increased uncertainty. Consumer confidence is a little bit down. We had a Federal Reserve Bank official talk about increasing credit card delinquencies.”

Car repossessions are also on the rise.

Banaian says if those trends continue through election day, it could hurt incumbents in St. Paul and Washington, D.C. He believes high financial stress is enough to sway independents to try something else.

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