Dollar-yen rose to the upper ¥154 range, but the yen's rapid appreciation temporarily reversed ahead of this week's monetary policy meetings in Japan and the United States. Higher oil prices and expectations of a U.S. rate hike have been cited as factors behind the move.
The dollar was broadly stronger in today's foreign exchange market, with dollar-yen rising temporarily to the upper ¥154 range. Ahead of this week's monetary policy meetings in Japan and the United States, the market is focused on the outlook for U.S. interest rates and the impact of geopolitical risks.
Following last week's U.S. inflation data, short-term markets are pricing in a roughly 90% probability of an FOMC rate hike, and expectations of a rate hike are supporting the dollar.
Meanwhile, the yen has risen sharply against the backdrop of the largest yen-buying intervention on record and the Treasury Secretary's assertive stance on yen depreciation. Some observers have also pointed out that yen positions in the CFTC's IMM open interest have shifted to net long.
Some market participants believe the yen is trading stronger than levels implied by the Japan-U.S. interest-rate differential. The focus is on the relative path of Bank of Japan rate-hike pricing and the Federal Reserve's rate-hiking cycle.
This week's monetary policy meetings in Japan and the United States will be an important test of whether yen buying following the intervention will continue. If the Bank of Japan does not signal a hawkish stance, yen-buying positions could be unwound.