Photo/Illutration Bank of Japan Governor Kazuo Ueda announces the issuance of new banknotes on July 3 at the central bank’s head office in Tokyo’s Chuo Ward. (Asahi Shimbun file photo)

SINGAPORE--The yen rose on Friday as traders considered comments from Bank of Japan Governor Kazuo Ueda, who sought to calm lingering nerves after a surprise rate hike last month, while markets braced for a speech from Federal Reserve Chair Jerome Powell.

With the spotlight squarely on the central bankers, Ueda appeared first in Japan’s parliament to explain the rate increase that had rattled investors.

The yen was 0.5% higher at 145.58 per dollar after Ueda reaffirmed his resolve to raise rates if inflation stayed on course to sustainably hit the 2% target, but warned financial markets remained unstable.

“Ueda-san has kept the door open for further rate hikes, while maintaining a cautious stance on the back of the market turmoil that ensued after the July 31 hike,” said Charu Chanana, head of currency strategy at Saxo in Singapore.

“This puts an end to speculations that BOJ could back off from hiking again due to the market turmoil seen.”

Bouts of interventions and the interest rate hike in July tripped up investors who unwound the popular carry trade, in which traders borrowed yen to finance high-yielding assets, yanking the yen away from the 38-year lows touched last month.

The move coupled with worries of U.S. recession triggered a massive global selloff in early August, although most markets have recovered since then.

The dollar index, which measures the greenback versus six major peers, was 0.11% lower at 101.35 after rising 0.34% in the previous session but remains close to the 2024 low of 100.92 it touched on Wednesday. The index is headed for fifth straight week of losses.

Fed policymakers on Thursday lined up in support of the U.S. starting interest rate cuts next month now that inflation is down from its highs and the U.S. labor market is cooling, though one signaled he is in no rush to ease policy.

Kansas City Fed Bank President Jeff Schmid, one of the U.S. central bank’s more hawkish policymakers, was the outlier among hordes of policymakers speaking on Thursday.

That sets the stage for Fed’s Powell, who is due to speak at a central bank event in Jackson Hole, Wyoming, later on Friday where traders will tune in to gauge when and by how much the Fed could lower borrowing costs.

Nomura analysts said Powell’s speech is likely to be measured and balanced, retaining optionality, and he is unlikely to sway from the easing path hinted at by the minutes of Fed’s last meeting.

Markets are now pricing in 73.5% chance of the Fed cutting rates by 25 basis points (bps) at its September meeting, the CME FedWatch tool showed. Traders are also anticipating 99 bps of easing this year.

“While a soft landing for the economy is still within sight, it is by no means guaranteed,” said Ryan Brandham, head of capital markets for North America at Validus Risk Management.

Brandham said the balance of risks is titled towards fewer, rather than more cuts.

The euro was last 0.1% higher at $1.1124, not far from the 13-month high it touched on Wednesday, while sterling fetching $1.31015, just shy of the 13-month high it hit on Thursday.

Markets are now pricing in more rate cuts from the Fed by year-end than for the European Central Bank or Bank of England.

The Australian dollar was at $0.6710, while the New Zealand dollar was 0.12% higher at $0.6148, supported by a rise in risk appetite.

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