Bank of Japan Governor Masaaki Shirakawa roused little interest among rate watchers with a speech on monetary policy early this morning. Comments made by the central banker suggested he would keep lending rates at current lows for the foreseeable future as they would help the economy avoid a “deep” economic slump.
For the market, there is little to no chance the BoJ would hike given current economic conditions (and any modest hikes at these levels would do little to unsettle the carry trade anyway); so instead traders showed more interest in the relatively comforting growth outlook in Shirakawa’s comments. The real strength for the yen however, was borne out of the sharp pull back in equities and other high-return, high-risk securities. The Dow 30 dropped more than 2 percent while the S&P VIX jumped up to 21 percent from a two and a half month low on renewed concern over the health of the financial sector as another (small) US bank succumbed to the credit crunch.