By Hannah Lang
NEW YORK (Reuters) – The yen fell on Wednesday after an influential Bank of Japan official downplayed the chances of a near-term interest rate hike, allaying investor concerns that a further jump in the Japanese currency would once again depress global markets. can cause shaking.
The yen fell about 2.5% to a session low of 147.94 per dollar after comments from BOJ Deputy Governor Shinichi Uchida. The dollar last rose 1.74% to 146,850 yen.
“As we see sharp volatility in domestic and foreign financial markets, it is necessary to maintain the current level of monetary easing for the time being,” Uchida said.
His comments, which contrasted with Governor Kazuo Ueda’s hawkish comments last week when the BOJ unexpectedly raised rates, sent Japanese stocks higher, effectively leaving them flat this week.
The BOJ’s rate hike last week, along with Tokyo’s intervention in early July, led investors to withdraw from the once-popular carry trades, in which traders borrow the yen at low interest rates to invest in assets offering higher returns .
The unwinding of the carry, combined with weak U.S. jobs data and fears of an artificial intelligence bubble, will send global stocks tumbling this week, starting with a 12% crash in Japanese stocks on Monday.
“I think we’re still relaxing a little bit from what, at least thematically from a market perspective, was a bit of an overreaction,” said Marvin Loh, senior global macro strategist at State Street (NYSE:) in Boston.
The , which measures the currency against six rivals, rose 0.214% to 103.2, moving above the seven-month low of 102.15 it hit on Monday.
“The drama – the rush and urge – of these kinds of moves in stocks are great stories, but they don’t necessarily point to a larger economic catastrophe. I just don’t see it,” said Joseph Trevisani, senior analyst. on FX Street in New York.
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The yen’s decline was broad-based, with the Mexican peso, New Zealand dollar and Australian dollar (all candidates for trade investments) rising against the currency.
The Swiss franc, another currency used like the yen to finance carry trades, fell about 1.18% to 0.862 per dollar.
The euro fell 0.09% to $1.092, below an eight-month high of $1.101 reached on Monday as the dollar fell. Sterling fell 0.06% to $1.268.
Traders increased their bets on Federal Reserve rate cuts on Monday after an unexpected rise in unemployment on Friday, at one point pricing in more than 125 basis points of cuts this year.
These bets have been gradually lowered, with traders on Wednesday expecting a 100 basis point easing this year and a 62% chance of a 50 basis point cut in September, after pricing it as a near certainty on Monday.
“I think you’re starting to see people say, let’s drill down into the details of what’s happening in the labor market, and then really come to the conclusion that things really aren’t falling apart at lightning speed in the United States,” he says. said Stephen Miran, senior strategist at Hudson (NYSE:) Bay Capital.
In other currencies, the Australian dollar was 0.01% lower at $0.652, a day after the central bank ruled out the possibility of a rate cut this year as core inflation is expected to fall only slowly.
The economy has struggled in recent days, falling to an eight-month low on Monday in the wake of the global market collapse, but recovered the day after the BOJ’s comments.
The New Zealand dollar rose 0.63% to $0.599 after strong employment data.
