(Bloomberg) — Stocks around the world rose and the yen fell after the Bank of Japan’s deputy governor said it would not raise interest rates if markets were unstable, supporting a recovery from the recent global crisis.

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Euro Stoxx 50 futures rose 1.3%, in line with U.S. futures. This followed a strong session in Asia, where Japanese stocks led a broad rally after the yen fell over 2% against the dollar, reflecting the benefits of a cheaper currency for an export-oriented economy.

An Asian stock index rose 1.5 percent. Yields on US government bonds and the Bloomberg dollar index also rose slightly.

The latest return of risk appetite came after Bank of Japan deputy governor Shinichi Uchida sent a strong signal of dovishness, saying the central bank’s interest rate stance would change as the economic outlook was affected by markets. His comments came in the wake of efforts by the Japanese government and central bank to present a united front to reassure markets amid mounting criticism of last week’s abrupt tightening of monetary policy.

Uchida sought to calm markets after the BOJ unexpectedly tightened monetary policy on July 31, signalling a more aggressive stance than some traders had expected. The rate hike triggered a three-day plunge in Japanese stocks, a surge in the yen and a rapid unwinding of the currency carry trade that led to a decline in risk assets around the world.

“It seems that the BOJ is currently reasonably comfortable with the yield levels of USD/JPY and JGB, and we suspect that the central bank will aim to keep markets at these levels,” said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd. But “his comments nonetheless suggest that a further hike is possible if markets stabilize and the economy recovers, as the central bank has forecast in its recent macroeconomic forecasts.”

The BOJ could still raise interest rates in December or early 2025, he added.

The Nikkei and Topix indexes slipped into a bear market on Monday after falling 20 percent from their July highs. The Nikkei’s implied volatility hit its highest level since 2008 at the start of the week.

“Uchida’s comments may provide some stability to the Japanese equity market for now, but cannot divert the focus from US economic data and recession concerns,” said Charu Chanana, head of currency strategy at Saxo Markets. “In this environment of higher volatility and nervousness about the US economy, it remains difficult to enter new carry trades.”

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Investors who used the cheap currency to finance investments in higher-yielding assets were surprised when the yen rose 11 percent last month.

The Mexican peso, a target for carry trades that collapsed after the BOJ’s rate hike, also rose over 1 percent against the dollar on Wednesday. The Australian dollar and its New Zealand counterpart also gained.

The S&P 500 and Nasdaq 100 rose on Tuesday — after a Japan-led recovery in Asia — both gained 1 percent following the global meltdown. Wall Street’s “fear indicator” — the VIX — posted its biggest drop since 2010. Traders also tempered expectations for Federal Reserve rate cuts this year. Swaps forecast an easing of about 105 basis points, down from as much as 150 basis points on Monday.

The yield on 10-year US Treasury notes rose two basis points in Asian trading, after rising 10 basis points to 3.89% on Tuesday. Oil prices rose.

Elsewhere, Chinese stocks rose slightly after four consecutive days of losses following mixed trading data.

In the corporate world, Super Micro Computer Inc. shares fell more than 10% in extended trading after the company reported quarterly revenue and profit that fell short of analysts’ estimates.

“We would describe the recent market decline as a pattern correction after months of low volatility so far in 2024,” said Carol Schleif of BMO Family Office. “The lack of volatility before the last few weeks is unusual, and our current correction is actually quite normal, especially in August, which is historically a volatile time for markets due to lower trading volumes and the summer lull.”

Markets returned to calm on Tuesday after an earlier decline fueled by weak economic data, disappointing tech results, over-positioning and poor seasonal trends. The wall of worry that has built up in the market over the past few days brought the S&P 500 to the brink of a correction, with a decline of about 8.5% from highs.

Important events this week:

• US consumer credit, Wednesday

• Industrial production Germany, Thursday

• US initial jobless claims, Thursday

• Speech by Fed Chairman Thomas Barkin on Thursday

• China PPI, CPI, Friday

Some of the key market movements:

Shares

• S&P 500 futures rose 0.8% as of 6:42 a.m. London time

• The Japanese Topix rose 2.9 percent

• Australia’s S&P/ASX 200 rose 0.4%

• Hong Kong’s Hang Seng rose 1.9%

• The Shanghai Composite rose 0.5%

• Euro Stoxx 50 futures rose 1.1%

• Nasdaq-100 futures rose 1%

• Australia’s S&P/ASX 200 rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.2 percent to 1.0910 dollars.

• The Japanese yen fell 2% to 147.27 per dollar

• The offshore yuan fell 0.3% to 7.1836 per dollar.

• The Australian dollar rose 0.5% to $0.6553

• The British pound rose 0.1% to $1.2705.

Cryptocurrencies

• Bitcoin rose 0.7% to $56,942.75

• Ether rose 1.1% to $2,517.47

Tie up

• The yield on 10-year government bonds rose two basis points to 3.91%.

• The yield on Japanese 10-year bonds fell one basis point to 0.875 percent.

• The yield on 10-year Australian bonds rose seven basis points to 4.09 percent

raw materials

This story was created with the assistance of Bloomberg Automation.

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