Renewed Weakness of the Yen: Bank of Japan Defends Low Interest Rates

The yen extended its losses against the US dollar on Wednesday after Bank of Japan Deputy Governor Shinichi Uchida indicated that an increase in key interest rates is out of the question as long as financial markets remain unstable. As a result of ongoing volatility in the Japanese markets since the BOJ's interest rate hike last week, the currency weakened by more than 2% against the dollar. By 11:17 a.m. local time in Tokyo, the yen was trading at 146.69, reflecting a 1.6% decline. Earlier in the week, the yen had benefited from a five-day rally after both the BOJ raised rates and the Federal Reserve signaled rate cuts for September. However, the yen's trajectory reversed on Tuesday. Japanese stocks, which had suffered under the strong yen, remained volatile but were trading higher on Wednesday. Uchida emphasized that recent market movements were "extremely volatile" and that the central bank must therefore maintain its loose monetary policy. An interest rate hike in an unstable market environment was ruled out, which moderated the hawkish stance of the bank from last week. "The fact that they clarified they will adjust their monetary policy stance amid rapid changes in the financial markets is seen as a relief," said Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking Corp. "The yen is likely to continue falling.