【True Wisdom Hong Kong Stock Experts】If oil prices remain high, the Bank of Japan will be the first to raise interest rates

Global stock markets experienced severe volatility this week, following a tanker attack in Iraqi waters that highlighted risks to energy infrastructure and intensified market concerns over an escalation of the Middle East conflict, driving up oil prices.

International oil prices once again tested $96, after the tanker attack prompted Iraq to suspend operations at its oil ports. Meanwhile, Bahrain stated that Iran attacked its fuel storage tanks; Oman, for precautionary purposes, evacuated all vessels from its key crude oil export terminal, Mina Al Fahal.

For investors, the energy market remains the primary focus, as persistent volatility in oil and gas prices continues to push up inflation expectations. The renewed rise in oil prices indicates that market concerns over a protracted war have outweighed the relief provided by the emergency release of crude reserves by several countries.

Simultaneously, rising pressure in the private credit market has also dampened market sentiment. Morgan Stanley and Cliffwater LLC have imposed redemption restrictions on their multi-billion dollar private credit funds. As concerns over loan quality intensify, the fund industry is facing a wave of redemption requests.

The war in Iran has entered its second week, with the Strait of Hormuz, which carries one-fifth of the world's oil shipments, closed. As the Middle East crisis could last for months and trigger physical supply shortages, international oil prices have the potential to reach the 2008 historical high of $147 per barrel, while Iran suggests prices could reach $200.

The International Monetary Fund (IMF) stated that a 10% increase in energy prices sustained for one year would raise global inflation by 40 basis points and slow economic growth by 0.1 to 0.2 percentage points. Traders currently expect the Federal Reserve to cut interest rates only once this year.

Japan, which originally intended to pause rate hikes, now sees market participants expecting the central bank to keep monetary policy unchanged next week, but view the possibility of a rate hike in April at around 68%. The yen is currently hovering around the 159 level, where the Federal Reserve conducted a so-called "rate check" in January this year. However, compared to January, the U.S. authorities may have less motivation to conduct such a check.

Supply concerns continue to keep the energy market volatile. If the economic outlook does not deteriorate, Bank of Japan Governor Kazuo Ueda may reiterate his intention to raise interest rates after the policy meeting. As long as the Middle East situation stabilizes, the base expectation is for a rate hike in April.

Some economists point out that if Takako Takai intervenes in the Bank of Japan's policy discussions with the intent to slow the process of monetary policy normalization, it would lead to yen depreciation. A weak yen would exacerbate the high inflation of the past few years, putting pressure on households.

(Author: Professor Li Huifen, Greater Bay Area Family Office Association)

(The author does not hold the above-mentioned stocks)