Yen buying prevailed in dollar-yen trading this week, with the pair continuing to fall from the mid-¥160s to the ¥157 range. Overseas markets are expected to continue assessing whether the yen's strength will persist.
Yen buying has prevailed in dollar-yen trading this week. After rising to the mid-¥160s and updating the post-intervention rebound high, the pair subsequently continued to fall through the ¥159 and ¥158 ranges, reaching the ¥157 range currently.
The background includes a pause in the rise in crude oil prices and a fall in NY crude oil futures below $90, while the U.S. 10-year Treasury yield has settled around 4.76%. In equity markets, selling pressure has prevailed across Asian markets.
Factors behind the dollar-yen decline include intervention concerns at the ¥160 level, reports calling for a Bank of Japan rate hike, expectations of a narrowing U.S.-Japan interest-rate gap, and speculation that GPIF may raise its allocation to Japanese investments. In addition, one-week volatility in the currency options market surged into the 10% range, prompting views that the premise for yen carry trades has broken down and could encourage position unwinding.
The focus in overseas markets ahead will be whether the yen's appreciation continues. Assuming a U.S.-Japan short-term interest-rate differential of approximately 2.5%, the estimated dollar-yen range is about ¥4, and the estimated break-even level is near ¥156 when calculated from a starting point of ¥160. The key near-term question is whether the ¥157 level will hold.