BoJ Governor Ueda Speaks USDJPY Swings on AI and Rate Hike Speculation

The Japanese Yen saw brief strength on Tuesday following remarks by Bank of Japan (BoJ) Governor Ueda, but quickly relinquished those gains. Ueda’s speech marked his first major comments since the BoJ’s September 18 interest rate hike to 1.25%. Traders currently assign about a one-in-four chance to another hike on October 30.

USD/JPY has oscillated around the 158.00 mark in recent sessions. BoJ Deputy Governor Uchida had previously highlighted artificial intelligence (AI) as a significant positive demand shock, driving up activity and prices. His remarks caused USD/JPY to dip toward 157.50 before rebounding above 158.00. Uchida also noted that AI has made financial conditions more accommodative, despite the BoJ’s recent rate hike aimed at tightening them.

The BoJ’s rate hikes in June and September suggest a possible three-month gap between increases, pointing to December rather than October for the next move. However, Governor Ueda indicated after the September hike that the BoJ’s focus has shifted from lifting inflation toward 2% to preventing it from overshooting. This could argue for an October hike rather than waiting for December.

Japan’s August labor cash earnings, due on Tuesday at 23:30 GMT, are expected to rise 3.7% year-over-year, down from 4.7% in July. A slowdown in wage growth could make an October hike less likely. Governor Ueda’s speech precedes these figures, meaning his remarks on October will not factor in the latest data. Meanwhile, the Federal Reserve’s September minutes are set for release on Wednesday at 18:00 GMT.