The Bank of Japan's influential deputy governor said on Wednesday the central bank won't hike interest rates when markets are unstable, playing down the chance of a near-term hike in borrowing costs.
The remarks by Shinichi Uchida, which contrasted with Governor Kazuo Ueda's hawkish comments made last week when the BOJ raised interest rates, boosted Japan's Nikkei average and sent the yen sharply lower.
Uchida said the intense volatility seen in the market the past week could "obviously" change the BOJ's rate hike path if it affects the central bank's economic and price projections and the likelihood of Japan durably achieving the bank's 2% inflation target.
"As we're seeing sharp volatility in domestic and overseas financial markets, it's necessary to maintain current levels of monetary easing for the time being," Uchida said in a speech to business leaders in the northern Japanese city of Hakodate.
The recent strengthening of the yen would affect the BOJ's policy decision-making because it reduces upward pressure on import prices, and therefore overall inflation, Uchida said.
Stock market volatility would also influence its decision-making by affecting corporate activity and consumption, he added.
"Unlike U.S. and European central banks, we're not in a situation where we would end up being behind the curve unless we hike interest rates at a set pace," Uchida said.
"We won't raise interest rates when financial markets are unstable," Uchida said.
The dollar surged to a session high of 147.50 yen and was last up 1.6% at 146.59 after Uchida's remarks. The Nikkei stock average (.N225) climbed 3%.
Governor Ueda said the BOJ will keep raising rates if the economy and prices move in line with its projection, signalling the chance of steady hikes in coming years.
The hawkish remarks, as well as weak U.S. labour data that stoked fears of recession in the world's largest economy, helped contribute to a global market rout that sent the yen soaring and Japan's Nikkei average plunging on Monday.
