The yen was down more than 2.35% at 147.80 per dollar having hit session lows of 147.935 following the comments from BoJ Deputy Governor Shinichi Uchida

The yen slumped on Wednesday after an influential Bank of Japan official played down the possibility of a near-term rate hike in a fresh twist to the week that started with massive moves driven by U.S. recession concerns and unwinding of popular carry trades.

The yen was down more than 2.35% at 147.80 per dollar having hit session lows of 147.935 following the comments from BoJ Deputy Governor Shinichi Uchida.

As we are seeing sharp volatility in domestic and overseas financial markets, it is necessary to maintain current levels of monetary easing for the time being, he said.

His remarks, which contrasted with Governor Kazuo Ueda’s hawkish comments made last week when the Bank of Japan unexpectedly raised interest rates, sent the Nikkei up and weighed on Japanese government bond yields.

The BoJ’s hike last week along with bouts of interventions from Tokyo in early July led investors to bail out of once-popular carry trades, in which traders borrow the yen at low rates to invest in dollar-priced assets for higher returns.

That took the yen to a seven-month peak of 141.675 per dollar on Monday, from the 38-year lows of 161.96 it was languishing in just at the start of July.

But Uchida’s comments could still prop up the carry trade, investors say, even with more room for unwinding of the trades.

Uchida has saved the carry trade – for now, according to Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments.

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 U.S. economic data, which in turn informs Fed policy trajectory, he said.