Yen dives as BOJ plays down chance of hikes, soothing markets

The BOJ's hike last week, along with intervention 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 assets that offer higher returns.

The yen dropped on Wednesday after an influential Bank of Japan official played down the chances of a near-term rate hike, soothing investors' concerns that a further jump in the Japanese currency could again rock global markets.

The yen fell about 2.5 per cent to a session low of 147.94 per dollar following the comments from BOJ Deputy Governor Shinichi Uchida. The dollar was last up 1.79 per cent at 146.940 yen.

"As we are 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.

His remarks, which contrasted with Governor Kazuo Ueda's hawkish comments made last week when the BOJ unexpectedly raised interest rates, sent Japanese stocks higher, leaving them effectively flat for the week.

The BOJ's hike last week, along with intervention 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 assets that offer higher returns.

The carry unwind combined with weak U.S. jobs data and fears about an artificial intelligence bubble to send global stocks tumbling this week, started by a 12 per cent crash in Japanese equities on Monday.