Bank of Japan sends a dovish signal Analysts: The future upside potential of the Japanese Yen will weaken

According to the financial news app Zhitong Finance, Shinichi Uchida, Deputy Governor of the Bank of Japan, has sent a strong dovish signal, stating that there will be no interest rate hike during periods of market instability. Market observers believe that the Bank of Japan's remarks indicate concerns about recent market turmoil, suggesting a weakening potential for the future appreciation of the Japanese yen. Previously, global markets have experienced significant volatility, with the USD/JPY pair briefly falling to a low of 141.70 on Monday.

Since the beginning of this quarter, the Japanese yen has surged nearly 10%, triggering unwinding of carry trades and putting pressure on the Japanese stock market. Both major Japanese stock indices fell by over 12% on Monday, as the market anticipates further interest rate hikes in Japan, leading to a bear market.

Uchida's remarks mark the first public statement from the Bank of Japan since the interest rate hike on July 31. Here are some opinions from strategists and market observers:

Yen Approaching 145

Charu Chanana, Head of Forex Strategy at Saxo Markets, stated that Uchida's remarks "may bring some stability to the Japanese stock market for now, but cannot shift people's focus away from concerns about US economic data and recession worries, which have been a major catalyst for the recent downturn we have witnessed."

She said, "In an environment of increased volatility and market nervousness about the US economy, engaging in new carry trades remains challenging." "The yen may currently stabilize around the 145 level, but with the Fed accepting rate cuts, the risk-reward still leans towards further strengthening."

Limited Upside for the Yen

Alvin Tan, Head of Asian Forex Strategy at Royal Bank of Canada in Singapore, said, "Not only the Bank of Japan, but the entire Japanese government is shocked by the recent market turmoil of the past few days. They now understand that if there is a substantial slowdown in the US economy, the hawkish shift by the Bank of Japan last week will have negative implications for Japan."

He mentioned that unless there is a repeat of the severe market volatility seen on Monday, the decline in the USD/JPY pair is expected to be limited, and unless there is widespread risk aversion globally, the 140 level for the USD/JPY pair is likely to hold steady. "I do believe that the current upside is also limited."

Central Bank Unease

According to Moh Siong Sim, Forex Strategist at a Singapore-based bank, the strengthening momentum in Japanese wage growth bodes well for consumer spending, supporting the prospect of further policy tightening by the Bank of Japan. The significant appreciation of the yen has made policymakers uneasy, as evident from Shinichi Uchida's comments regarding interest rates.

Yen Depreciation

Hirofumi Suzuki, Chief Forex Strategist at Sumitomo Mitsui Banking Corporation, said, "The yen may depreciate, as it remains unstable in the financial markets. The risk of yen appreciation is unpredictable, but the USD/JPY exchange rate level set on Monday at 141.70 is far from over."

Suzuki mentioned that Uchida's statement tacitly acknowledges that it will be difficult for the Bank of Japan to raise rates in the near future. As for rate hikes, the earliest possibility could be in December, but he personally expects it to be in January next year Central Bank Hesitates

David Forrester, Senior Foreign Exchange Strategist at Credit Agricole CIB in Singapore, said that the Bank of Japan may be cautious about raising interest rates again soon, which will put pressure on the Japanese yen