Dollar-buying pressure continued in the first half of this week, lifting USD/JPY into the 158 area. While intervention concerns are growing in the Tokyo market, the U.S.-Japan interest-rate differential and the hawkish stance at the U.S. FOMC have been cited as the backdrop.
During the Silver Week holiday period in the first half of this week, USD/JPY rose to around 158.40 in overseas trading before being pushed back toward around 157.80 ahead of the Tokyo market open. The 158 area is viewed as a level at which intervention concerns in USD/JPY are likely to intensify.
In the options market, short-term volatility fell to around 6.71% before rising to approximately 8.0%, indicating moves that reflect demand for hedges against yen appreciation. The one-month 25-delta risk reversal stands at -2.195, with yen calls commanding a premium, as on the previous day, suggesting positioning for a move toward a stronger yen. Whether USD/JPY can break above the 200-day moving average at 158.47 is the immediate focus.
The dollar as a whole remains firm, with the U.S. dollar index holding near its highs in the 101 range. EUR/USD is trading in the upper 1.13 range, while GBP/USD is in the lower 1.32 range. The recent U.S. FOMC's more hawkish-than-expected stance has been cited as the backdrop, while expectations are that the Bank of Japan's policy will remain divided and the U.S.-Japan interest-rate differential will be maintained. A sharp decline in oil prices on hopes of an improvement in the Middle East situation has also not been enough to fully drive an unwinding of dollar-buying positions.
Key events ahead include central bank policy-rate decisions in Switzerland, Sweden and Norway; Germany's Ifo business climate index; Hong Kong's trade balance; Canadian retail sales; the U.S. current account balance; U.S. initial jobless claims; U.S. new home sales; and Mexico's central bank policy-rate decision. Scheduled remarks and events include a press conference by Swiss National Bank Chairman Schlegel, as well as speeches by several U.K., U.S. and European financial officials.