Yen Plunges as BOJ Hints at Steady Rates

7 Aug 2024 , 09:50 AM

The Bank of Japan’s influential deputy governor stated on Wednesday that the central bank will not raise interest rates when markets are volatile, reducing the likelihood of a near-term increase in borrowing costs.

Shinichi Uchida’s statements, which contrasted with Governor Kazuo Ueda’s hawkish comments last week when the BOJ unexpectedly lifted interest rates, bolstered Japan’s Nikkei share average while sending the currency substantially lower.

Uchida stated that the recent market volatility might “obviously” impact the BOJ’s rate hike path if it affects the central bank’s economic and price expectations, as well as Japan’s ability to meet its 2% inflation objective on a long-term basis.

According to Uchida, the recent currency strengthening will have an impact on the BOJ’s policy decisions since it decreases upward pressure on import prices and, as a result, overall inflation.

He noted that stock market volatility will have an impact on its decisions by influencing company activity and consumption.

Following Uchida’s remarks, the dollar jumped to a session high of 147.50 yen and closed up 1.6% at 146.59. The Nikkei rose 3%, while the benchmark 10-year Japanese government bond (JGB) yield declined 1 basis point to 0.875%.

Last week, the BOJ boosted interest rates to levels not seen in 15 years and outlined a comprehensive strategy to taper its massive bond purchases, taking another step towards ending a decade of unprecedented stimulus.

Governor Ueda stated that if the economy and prices follow its projections, the BOJ will continue to raise interest rates, implying that consistent hikes are possible in the coming years.

The hawkish words, combined with disappointing US labour data that fuelled worries of a recession in the world’s largest economy, contributed to a worldwide market collapse that left the yen surging and Japan’s Nikkei index plummeting on Monday.

Since then, markets have fluctuated, mainly as traders recalculated the timing and speed of anticipated BOJ rate hikes.

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