The focus of the foreign exchange market is shifting from central bank policy to the US midterm elections in November. Nomura Securities' Gotō Yūjirō (後藤祐二朗) explains how political and fiscal developments in Japan, the US and Europe could affect the yen and dollar markets.
The major central bank meetings in October are expected to be uneventful. USD/JPY is holding firm around 158 yen, while EUR/JPY is capped by concern over France's political and fiscal situation. Expectations for rate hikes in October have receded, and expectations for rate hikes by the BOJ and ECB are also expected to be restrained.
Market focus is expected to shift to the US midterm elections to be held on 3 November. Trends on online prediction sites indicate that the probability of Republicans retaining a majority in the House has declined, while expectations that they will retain a majority in the Senate have also receded. The dollar's reaction is expected to vary depending on developments involving the Democrats.