Shinichi Uchida, the Deputy Governor of the Bank of Japan, sent a strong dovish signal amid historical financial market volatility by pledging to refrain from hiking interest rates when the markets are unstable.

The yen dropped over 2% against the dollar, bond futures surged, and stocks rebounded following comments from a Bank of Japan (BOJ) board member. These remarks were the first public statements since the BOJ’s rate increase on July 31.

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.”

He spoke after significant fluctuations in Japanese stock prices over the past week, with benchmark indexes dipping into bear markets and then sharply rebounding. 

The BOJ’s policy impacts were also felt in currency markets, disrupting carry trades relied upon by global funds. The deputy chief indicated that the bank would carefully consider the condition of financial markets in future rate policy decisions.

Uchida added that the Japanese authorities are ready to wait for the markets to calm before making any further decisions.

The authorities need to monitor any potential impact on prices and the overall economy from market moves. Depending upon the impact, the trajectory of Japan’s interest rates could be shifted.

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