Yen gives back recent appreciation as BoJ refrains from rate hikes when markets unstable

The Japanese yen depreciated on Wednesday from a seven month high hit early this week after BoJ deputy governor Uichida noted his speech that the Bank will not raise its policy interest rate when financial and capital markets are unstable. He added that 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. However, he further noted that since recent developments in financial and capital markets at home and abroad have been extremely volatile, the Bank is monitoring developments in these markets and their impact on economic activity and prices with utmost vigilance, and it will conduct monetary policy as appropriate and that the Bank needs to maintain monetary easing with the current policy interest rate for the time being.

Yen is currently quoting at around 147.50 against the dollar after having appreciated to as much as 141 on Monday. The Japanese currency has been constantly on the rise in the past one month and added almost 10% against the dollar. The latest trigger in the currency came amid sharp unwinding of yen carry trade as BoJ raised interest rates by 35 basis points between March and end July this year that contributed to the large scale global equity sell-off on Monday in addition to US recessionary fears on the back of poor US data.

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