Japanese Yen Volatile After BoJ Governor Ueda's Speech

The Japanese Yen experienced a brief surge on Tuesday following remarks from Bank of Japan (BoJ) Governor Ueda, only to later give back those gains. Governor Ueda's speech marked his first major comments since the BoJ's September 18 interest rate hike to 1.25%. Traders are currently assigning about a one-in-four chance to another rate hike on October 30.

BoJ Deputy Governor Uchida had earlier highlighted the positive impact of artificial intelligence (AI) on economic activity and prices, describing it as a significant demand shock. His comments caused the USD/JPY pair 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 increase.

The likelihood of an October rate hike is being weighed against the BoJ's previous pattern of hiking rates every three months. Governor Ueda had indicated that the BoJ's focus has shifted from achieving 2% inflation to preventing it from overshooting, which could argue for an October hike rather than waiting until December.

Adding to the uncertainty, Japan's August labor cash earnings report, due on Tuesday, is expected to show a significant slowdown in wage growth, which could complicate the case for an October rate hike. Governor Ueda's speech preceded the release of these figures, leaving his remarks without the benefit of this data.

The USD/JPY pair has been volatile, crossing 158.00 in both directions over the past three sessions. Key resistance levels are seen at 158.50 and 159.00, while support is found around 157.50 and 157.00. The pair's bias remains bullish as long as it holds above 157.50 on a closing basis.