Deutsche Bank: If the Federal Reserve chooses quantitative tightening instead of raising interest rates, the US dollar could weaken

BlockBeats news, July 16, Deutsche Bank analyst George Saravelos said in a report that if the Federal Reserve shifts its policy focus from rate hikes to reducing its balance sheet (quantitative tightening) to tighten monetary policy, the US dollar could weaken as a result. He said Japan’s experience is worth taking lessons from: although the Bank of Japan has moved toward rate hikes slowly, it has withdrawn liquidity at a record pace through quantitative tightening, while the yen remains at historic lows.

In addition, tightening the balance sheet may also create policy conflicts with the Trump administration, because the Trump administration has made clear that it wants to keep long-term Treasury yields at relatively low levels. He also said that the independence of the Bank of Japan continues to draw market attention. Japan’s finance minister Kōzuki Katayama even discussed using domestic savings to support Japan’s bond market. (Jin10)