Global Interest Rate Hikes Loom as US and Japan Prepare to Act

The global financial market is bracing for potential interest rate hikes in major economies, including the US and Japan. The European Central Bank's (ECB) recent decision to raise rates has triggered expectations of similar moves by other central banks, including the Federal Reserve and the Bank of Japan. Rising energy prices and soaring costs due to artificial intelligence fever are driving up inflation, prompting calls for monetary tightening.

The US Fed is expected to raise its benchmark interest rate on September 16, which would be the first increase in three years since July 2023. Markets have priced in a 87.3% chance of a rate hike by the Fed, sending the US 10-year Treasury yield soaring to nearly 5%. Financial expert Diane Swonk warned that the market's concern is no longer whether rates will rise, but how high they must go to tame inflation.

The Bank of Japan is also set to raise its key interest rate to 1.25% from the current 1%, the highest level in 31 years since 1995. Kazuyuki Masu, a member of the Bank of Japan's deliberation committee, warned that the interest rate should end the actual negative state and be raised firmly within the level of neutral interest rates (1.1-2.5%). Otherwise, companies could invest excessively and real estate prices could jump.

However, if Japan's monetary policy tightening begins in earnest, there is a high possibility that the yen carry trade will be liquidated, leading to another asset market shock and increased volatility in the global financial market.