USD/JPY is expected to remain stuck around ¥158. The market reaction after the FOMC minutes were released was limited, making the BoJ's Sakura Report and branch managers' meeting key events to watch.
In the Tokyo market on the 8th, USD/JPY is expected to remain range-bound around ¥158 per dollar. Although crude oil prices rose and US long-term interest rates moved higher the previous day against the backdrop of tensions in the Middle East, the rise in long-term interest rates narrowed following a strong US 10-year Treasury auction. The market reaction remained limited even after the FOMC minutes were released, and trading has lacked a clear direction.
In the New York market the previous day, the yen initially strengthened to the upper ¥157 range, but dollar buying again prevailed in response to movements in US long-term interest rates, leaving USD/JPY range-bound around ¥158. Market sources said investors had priced in the fact that a majority supported an additional rate hike within the year in the minutes, but the actual market reaction was muted.
Foreign-exchange market participants have pointed to range-bound trading around ¥158.00 for 5 consecutive trading days, viewing heightened geopolitical risks and Europe's fiscal problems as factors keeping the market stagnant. From today onward, the outcome of the BoJ's Sakura Report and branch managers' meeting could determine the direction in which the market breaks out of its range.
The euro-yen is expected to be affected by euro selling driven by France's fiscal problems, with the impact also extending to the yen through cross-yen trading. The market is expected to continue seeking direction while assessing the interplay between Japanese and US interest-rate trends and geopolitical risks.