The global stock market rout has stabilized after the Bank of Japan assured that it will not raise interest rates while financial markets remain unstable.
Asian markets extended their rally overnight as Deputy Governor Shinichi Uchida sought to calm investor nerves following Tokyo’s benchmark stock index experiencing its worst points drop in history on Monday.
The Nikkei 225 closed 1.2% higher, with South Korea up 1.8% and Taiwan surging 3.9%. Uchida’s remarks alleviated concerns about the unwinding of the “carry trade,” which had led investors to dump stocks as the rising yen squeezed their margins.
The yen jumped after the Bank of Japan raised interest rates for the second time in 17 years last week.
Uchida stated, “As for the future conduct of monetary policy, in a nutshell, I believe that the Bank needs to maintain monetary easing with the current policy interest rate for the time being, given the extreme volatility in financial and capital markets both domestically and internationally.”
He added that the yen has recently “appreciated significantly against the US dollar, as large positions built up on a weaker yen are being unwound.”
Following his comments, the yen dropped more than 2% to 147.69 per dollar, marking its largest decline since the start of the pandemic in March 2020.
Matt Simpson, a senior market analyst at City Index, remarked, “I cannot fathom why they needed to say that they won’t hike rates in turbulent times, unless, of course, the goal is to signal no more hikes and to weaken the yen they just strengthened.”
Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments, added, “Uchida has saved the carry trade – for now. There are other moving parts, but yes, Japan’s policy is one of the important factors in the overall risk structure in the market. The other important ones include US economic data, which informs the Fed policy trajectory.”
