This week, dollar-yen rose to the low ¥158s before falling back after the U.S. policy events. Next week, volatility is expected to rise ahead of the U.S. midterm elections as expectations for additional rate hikes intersect with selling pressure.
This week, dollar-yen rose to the low ¥158s after monetary policy events in Japan and the United States, but after the events, selling on the rebound pushed it down to the ¥157 range, where it settled. On the 26th, the weak results of the U.S. 2-year Treasury auction sent long-term yields higher, with dollar buying leading the move. On the 27th, durable goods orders came in below market expectations, but the dollar extended its gains as consumer confidence improved. On the 28th, dollar buying led the move against a backdrop of higher oil prices and interest rates, but the dollar fell back after easing prospects for Iranian diplomacy and the FOMC's decision to leave rates unchanged. On the 29th, an upside surprise in GDP supported the dollar, although a decline in oil prices trimmed its gains. On the 30th, yen buying prevailed after the Bank of Japan decided to leave policy unchanged, and during New York hours the dollar, although holding relatively firm, was pushed back to the mid-¥156 range.
Next week, an unstable market is expected ahead of the U.S. midterm elections, with dollar buying and selling likely to intersect. U.S. long-term interest rates and the fiscal outlook could move depending on the election results, and there may be periods when expectations for additional rate hikes support the dollar. Meanwhile, European monetary policy developments, the Bank of Japan's policy stance and oil prices could affect the yen exchange rate.