An expert analysis of whether the yen will accelerate or the Fed will raise interest rates

The depreciation of the yen may accelerate further.

Attention will be paid to whether the difference in interest rates between Japan and the United States in the background will expand.

The Federal Reserve Board, which is the central bank of the United States, will hold a meeting to decide monetary policy for two days from the 20th.

With record-breaking inflation continuing, it is believed that the central bank will decide to raise interest rates significantly, but what do experts predict?

We interviewed three experts from Japan and the United States who are familiar with Fed policy.

(Washington bureau reporter Takuya Odashima)

Former Fed official: 1% rate hike unlikely, 0.75%

First, we spoke with a former Fed executive.

William Dudley was the president of the Federal Reserve Bank of New York from 2009 to 2018 and was the vice-chairman of the Fed's monetary policy meetings during this time.

Mr. Dudley points out the following about inflation at the foot.

"In August's consumer price index, which excludes highly volatile energy and food, the index rose, highlighting the persistence of high inflation."

"The Fed doesn't overreact to just one piece of data, so the rate hike it decides at this meeting is unlikely to be 1%, but 0.75%," he said.

In addition, Dudley said, ``In order for the Fed to reduce inflation to its target of 2%, the unemployment rate must be raised significantly. Wages continue to rise, so we won't be in a recession right now, but we're going to be in a recession next year and the year after that."

Former IMF Deputy Director: 'Severe damage to markets'

Next is Mr. Desmond Lachman, former deputy director of the IMF = International Monetary Fund and the American Enterprise Institute.

The August consumer price index showed that the Fed did not seem to be controlling inflation, and said, "There is a high possibility that the Fed will decide to raise interest rates by 0.75% at its meeting this week."

On the other hand, it is unlikely that the rate hike will reach 1% because further rate hikes would have a bigger impact on the stock market.

Lachman then points out the risks:

"We are concerned that the Fed's tightening of monetary policy could seriously damage the U.S. stock and housing markets. In addition, currency depreciation in emerging countries will worsen the economy by accelerating inflation and expanding national debt. Risks also rise, and my prediction is that early next year the U.S. economy will deteriorate significantly and the Fed will cut rates.”

Former Mitsubishi UFJ Bank economist "1 dollar = 150 yen if Fed hawkish"

The third is Mr. Toshiyuki Suzuki, a former MUFG Bank economist who is familiar with the Fed's monetary policy.

He points out that the future medium- to long-term outlook for interest rates presented at this meeting will be the focus.

At the Fed's meeting, 18 participants will provide year-end projections for GDP growth, inflation and policy interest rates from 2022 to 2025.

Of these, the policy interest rate is called a dot chart because the interest rate that each of the 18 people thinks is appropriate is indicated by dots, so the median value in the market is the interest rate level that the FRB (FOMC = Federal Open Market Committee) aims for. and is accepted.

“This time, the level of interest rates as of the end of 2022 will also be shown, so interest rate hikes to be decided at meetings in November and December from September onwards will be automatically estimated, and attention is increasing.”

On top of that, we speculate that the 0.75% interest rate hike in November and December will not continue, as the reduction of financial assets, which is called "quantitative tightening," will progress in the future.

Mr. Suzuki said that if the chart showing this interest rate outlook is hawkish (= tightening monetary policy), the yen will be under downward pressure on the premise that Japan's monetary policy will not change, and the target is 150 to 1 dollar. Predict that it will be a circle.

On that basis, Chairman Powell has shown his determination to keep inflation in check, even if it is painful. He is watching to see if the central bank asserts that it will not cut rates if rates remain high, he said.