(Updates at 0414 GMT)

By Ankur Banerjee

SINGAPORE, Aug 7 (Reuters) - The yen crumbled on

Wednesday after a Bank of Japan official played down the chances

of a near-term rate hike in a fresh twist to the week that

started with massive moves driven by U.S. recession fears and

unwinding of popular carry trades.

The yen was last down more than 2% at 147.69 per

dollar having touched session lows of 147.935 following the

comments from BOJ Deputy Governor Shinichi Uchida. The last time

the yen dropped over 2% was in March 2020.

"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

contrasted with Governor Kazuo Ueda's hawkish comments made last

week when the BOJ unexpectedly raised interest rates.

"I cannot fathom why they needed to say that they won't hike

rates in turbulent times, unless of course the goal is to signal

no more hikes and to weaken the yen they just strengthened,"

said Matt Simpson, a senior market analyst at City Index.

The rate hike from BOJ last week along with bouts of

interventions 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 dollar-priced assets for higher returns.

That took the yen to a seven-month high of 141.675 per

dollar on Monday, from the 38-year lows of 161.96 it was

languishing in just at the start of July.

But Uchida's comments could still prop up the carry trade,

investors say, even with more room for unwinding of the trades.

"Uchida has saved the carry trade - for now," said Rong Ren

Goh, a portfolio manager in the fixed income team at Eastspring

Investments.

"There are also other moving parts, but yes, Japan policy is

one of the important moving parts of the overall risk structure

in the market. The other important ones would be U.S. economic

data, which in turn informs Fed policy trajectory."

The swing in yen positioning seen over the last one month

was among the largest on record, according to strategists at JP

Morgan, with their models suggesting 65% of yen shorts have now

been covered as of Aug. 6.

This week's market volatility was exacerbated by a

softer-than-expected U.S. job report on Friday, and

disappointing earnings from major tech firms, sparking a global

sell-off in riskier assets as investors feared the U.S. economy

was heading for a recession.

Traders have also adjusted their expectations from the

Federal Reserve this year following the soft jobs report last

week, with nearly 105 basis points of easing anticipated by

year-end.

Markets are now pricing in a 70% chance of the Fed cutting

rates by 50 bps in September, CME FedWatch tool showed, compared

with 85% chance a day earlier, with major brokerages also

anticipating a large rate cut in the next meeting.

Some analysts though expect the Fed to take a measured

approach.

"My sense is that the Fed is doing what it does, it wants

some reaffirmation of the trend from several data points ...

before drawing a conclusion," said Aninda Mitra, head of Asia

macro and investment strategy at BNY Advisors Investment

Institute.

"Whereas the market looked at one NFP print ... and jumped

to the conclusion that a rate cut was needed," Mitra said,

referring to last week's soft jobs data.

On Wednesday, the euro eased slightly to $1.0916, while

sterling last fetched $1.27135, not far from the

five-week low it hit in the previous session.

The U.S. dollar index, which measures the currency

against six rivals, rose 0.27% to 103.26, inching further away

from the seven-month low of 102.15 it touched on Monday.

In other currencies, the Australian dollar was

0.61% higher at $0.65585, a day after the central bank ruled out

the possibility of an interest rate cut this year, saying core

inflation is expected to come down only slowly.

The Aussie has struggled in recent days, sinking to

eight-month lows on Monday in the wake of the global markets

meltdown but perked up on the day following BOJ comments.

The New Zealand dollar was up 0.98% at $0.60125

following strong jobs data.