Aug 7 2024: The yen fell sharply on Wednesday after a key Bank of Japan (BOJ) official downplayed the likelihood of a near-term rate hike, easing investor concerns about further volatility in global markets.
The yen declined by approximately 2.5% to a session low of 147.94 per dollar following comments from BOJ Deputy Governor Shinichi Uchida. The dollar was last trading up 1.9% at 147.06 yen.
Uchida’s statement, emphasizing the need to maintain current monetary easing due to ongoing market volatility, contrasted with the BOJ’s previous hawkish stance when it unexpectedly raised interest rates last week. His remarks provided a boost to Japanese stocks, leaving them effectively unchanged for the week.
The BOJ’s recent rate hike and intervention by Tokyo in early July prompted investors to exit carry trades, where traders borrow yen at low rates to invest in higher-yielding assets. This unwinding, combined with weak U.S. jobs data and concerns about an AI bubble, contributed to a global stock market sell-off, beginning with a 12% drop in Japanese equities on Monday.
“I think it’s becoming clear that the BOJ’s recent hawkish shift may have been a policy misstep,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “Japan’s economy is struggling, particularly with domestic demand.”
