Japan plans to raise interest rates. Investors are spooked

Japan’s Nikkei 225 suffered major losses for a second straight day on Friday with traders expecting the country’s central bank to further tighten monetary policy.

Japan’s Nikkei 225 suffered major losses for a second straight day on Friday with traders expecting the country’s central bank to further tighten monetary policy. The Nikkei 225 sank 4.5% on Friday, extending a global stock rout that started following the release of weak US economic data. That’s after the benchmark ended 2.5% lower on the previous day. The index is now heading towards its lowest level since February. The Bank of Japan (BOJ) raised interest rates by 15 basis points to 0.25% on Wednesday, its second hike this year, and announced plans to taper off its policy of bond buying. The announcement marked a fresh ongoing effort by the BOJ to normalize its monetary policy after more than a decade of debt-buying. Traders expect more rate hikes to come later this year. “The BOJ made a hawkish shift after its surprising 15 (basis point) rate hike,” said Ken Cheung, director of foreign exchange strategy at Mizuho Securities. “Importantly, the BOJ flagged the inflation upside risks … and left the door open for further rate hikes. ” The hike has narrowed the difference in interest rate between the United States and Japan, which pushed the Japanese yen higher against the greenback. The yen’s short positions continued to unwind, meaning short-sellers closed their positions on the yen, with the dollar falling by more than 4% against the Japanese currency since the middle of last month. On Friday, the dollar rebounded slightly against the yen, up 0.1% to 149.57.