BOJ deputy governor pledges refrain from further rate hikes
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The news: The Bank of Japan's deputy governor Shinichi Uchida pledged to refrain from hiking interest rates when the markets are unstable, in the first comments by a BOJ board member since the bank raised rates a week ago.
What they said: In a speech to local business leaders in the Japanese city of Hakodate, Uchida said: "I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being, with developments in financial and capital markets at home and abroad being extremely volatile.
"In contrast to the process of policy interest rate hikes in Europe and the United States, Japan’s economy is not in a situation where the bank may fall behind the curve if it does not raise the policy interest rate at a certain pace," Uchida said. "Therefore, the bank will not raise its policy interest rate when financial and capital markets are unstable."
The numbers: The yen weakened by more than 2% against the US dollar and stocks rebounded immediately after his remarks, Bloomberg reported.
The Nikkei 225 shed 12% on Monday, its biggest selloff since the "Black Monday" crash of 1987 amid widespread volatility across global financial markets, before rebounding on Tuesday.
The context: The BOJ's move to raise interest rates last week was also seen to have dramatic reverberations in currency markets, disrupting the yen carry trade — long a feature of global finance — where investors borrow in yen at cheap rates and re-invest in other global assets.
Uchida, who helped to formulate the BOJ’s monetary easing program that ran for more than a decade, also noted that authorities need to monitor potential impact on prices and the overall economy coming from market moves, and the trajectory for Japan’s interest rates could shift depending on that impact.
The sources: Bloomberg, Bank of Japan media release
