The global stocks rout has steadied after the Bank of Japan insisted it will not raise interest rates while the financial markets are unstable.
Asian markets extended their rally overnight as deputy governor Shinichi Uchida sought to calm investor nerves after Tokyo’s benchmark stock index suffered its worst points drop in history on Monday.
The Nikkei 225 was up 2.3pc, with South Korea up 2.5pc and Taiwan surging 3.4pc as the speech quelled concerns about the unwinding of the so-called “carry trade” which has seen investors dump stocks as the surging value of the yen squeezed their margins.
The yen leapt higher after the Bank of Japan raised interest rates for the second time in 17 years last week.
Mr Uchida said: “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, with developments in financial and capital markets at home and abroad being extremely volatile.”
He added that the yen has in recent days “appreciated significantly against the US dollar, since large positions that had been built up on a weaker yen are being unwound”.
Following the comments, the yen was last down more than 2pc at 147.69 per dollar – its largest drop since the start of the pandemic in March 2020.
Matt Simpson, a senior market analyst at City Index, said: “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 also other moving parts, but yes, Japan policy is one of the important moving parts of the overall risk structure in the market. The other important ones would be US economic data, which in turn informs Fed policy trajectory.”
