In the Tokyo foreign exchange market on the 22nd, the dollar-yen is expected to lack clear direction, trading centered on the lower 158 level per dollar. In overseas trading the previous day, yen buying led on falling US long-term yields tied to lower crude oil prices and comments from Bank of Japan Deputy Governor Ryozo Himino, but the pair recovered as dollar buying emerged on reports concerning the Middle East situation, reflecting geopolitical risk awareness. Market participants’ expected range is 157.50 to 158.60 yen. With the Federal Reserve and the Bank of Japan both scheduled to announce monetary policy the following week, moves to take aggressive positions are likely to be limited.
During overseas trading the previous day, the dollar-yen was seen as top-heavy. It was noted that if investor sentiment improves on US tech company earnings, dollar buying as a safe-haven asset could weaken. On the other hand, heightened Middle East tensions and higher crude oil prices underpin safe-haven demand for the dollar. Ahead of next week’s Federal Open Market Committee (FOMC) meeting, there is little material likely to significantly alter the outlook for monetary policy, and the market’s focus has shifted to the direction of US interest rates.
If US interest rates rise again, that would support the dollar-yen, while continued declines would tend to strengthen dollar selling. With few highly anticipated US economic indicators this week, US weekly initial jobless claims and the US leading economic index will be released on the 22nd.
On the yen side, market attention is on Japanese price trends and expectations for additional Bank of Japan rate hikes. Finance Minister Satsuki Katayama said on the 21st that inflation is shifting from being driven by import prices to inflation accompanied by wage growth, and indicated her view that there is no gap between the government’s and the Bank of Japan’s policies. If the situation continues in which yen weakness pushes up import prices, expectations for Bank of Japan policy normalization could prompt yen buying.
In phases where the dollar-yen maintains elevated levels, caution over yen-buying intervention by the Japanese government and the Bank of Japan will be a factor capping upside. In the market, the 200-day moving average at 158.56 yen and the 14-day high of 158.95 yen are being watched as upside targets, while the 19th’s low of 157.70 yen and the daily Ichimoku chart’s baseline at 156.95 yen are seen as downside targets.
| Item | Level / Details |
|---|---|
| Expected range (Tokyo) | 157.50–158.60 yen |
| Upside targets | 200-day moving average 158.56 yen, 14-day high 158.95 yen |
| Downside targets | 19th low 157.70 yen, baseline 156.95 yen |
| Domestic indicators | Foreign and domestic securities buying/selling contracts, Disco earnings |
| US indicators | Weekly initial jobless claims, leading economic index |
| European indicators | Eurozone October consumer confidence index (preliminary) |
Note: The expected range is based on market participants’ forecasts.
In the US, earnings announcements are also scheduled from Blackstone, Honeywell International, Newmont, Procter & Gamble (P&G), and Union Pacific. In Europe, the Eurozone October consumer confidence index (preliminary) will be released.
Among market participants, voices are heard expressing a desire to see whether a rebound in US interest rates will lead to dollar buying back. Two scenarios are envisioned: continued declines in US interest rates favoring yen buying, and a rebound if rate rises or a worsening Middle East situation strengthens dollar demand.
Behind this lies uncertainty over US and Japanese monetary policy. The Federal Reserve has not clearly indicated the direction of rate hikes or cuts, and the Bank of Japan is also at the stage of searching for the timing of additional rate hikes. With monetary policy events scheduled for the following week, this week is likely to be dominated by position-adjustment trading amid a scarcity of fresh material.
Foreign exchange market moves affect Japanese companies and households through export companies’ profitability and import prices. If yen weakness progresses, rising import costs would squeeze corporate earnings while providing a tailwind for exporters. If the Japanese government and the Bank of Japan decide to conduct yen-buying intervention, market volatility could temporarily increase.
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