Yicai, a Chinese media outlet, carried a commentary warning that the Bank of Japan risks falling into a “tightening trap” in which monetary tightening that ignores sluggish money-supply growth deepens structural stagnation, as expectations for an additional rate hike grow.
The article introduces a commentary written by Zhou Ziheng (周子衡), chairman of the Zhejiang Institute of Modern Digital Finance Technology. It notes that between July and August, the yen recovered against the US dollar from approximately ¥164 to around ¥153, while the yield on 10-year government bonds rose to approximately 2.99%. It says market expectations are growing that the Bank of Japan will raise its policy rate from 1.0% to 1.25% at its monetary policy meeting on 17–18 September and accelerate rate hikes from next year onward.
Zhou Ziheng (周子衡) identifies money supply, rather than interest rates, as the core of monetary policy. He analyzes the growth rate of the M2 money supply in August as having remained low at approximately 2.0% year on year, insufficient to support the 2% inflation target. He says growth of 5–6% is necessary for the Japanese economy to achieve “genuine normalization.” He also expressed concern that if rate hikes suppress private banks' credit creation, money-supply growth will slow and financial conditions will become excessively tight.