The dollar-yen exchange rate will be in focus next week in Tokyo amid diverging Japan-U.S. monetary policy and thin trading during Silver Week. Expectations are growing that the Bank of Japan will raise its policy rate while the U.S. FOMC will continue raising rates.
The dollar rose against the yen from 14 to 17 September. Dollar buying led the market against a backdrop of higher crude oil prices and rising U.S. long-term interest rates, while the yen's depreciation was contained.
During Tokyo hours on 18 September, the Bank of Japan raised its policy rate by 0.25 percentage points at its monetary policy meeting, setting it at 1.25%, a level not seen in roughly 31 years. Dollar buying prevailed after the announcement, while the yen temporarily moved higher after the Bank of Japan governor emphasized a policy of continued rate hikes at a press conference.
The market is expected to focus on the divergence in Japan-U.S. monetary policy. The next Bank of Japan rate hike is expected to come primarily in January next year, although the possibility of an additional hike this year remains. With the FOMC signaling hawkish rate hikes, the Japan-U.S. interest rate differential is expected to remain elevated, while thin liquidity during Silver Week is expected to invite moves led by overseas markets.
In the United States, the release of economic indicators including August new home sales and durable goods orders is scheduled. The fact that the Tokyo market will be closed from the 21st to the 23rd also warrants attention as the market considers the Bank of Japan's rate hike and U.S. interest-rate trends.