With the Middle East situation and uncertainty over U.S. fiscal policy drawing market attention, the yen is expected to weaken gradually, while risk sentiment is unlikely to deteriorate significantly and markets are expected to remain relatively calm.
The two themes currently attracting the most attention are the situation in the Middle East and uncertainty over U.S. fiscal policy. Regarding the Middle East, Secretary of the Treasury Bessent indicated a policy of excluding organizations that assist Iran's money laundering from the dollar settlement system, and the market shock remained limited.
Uncertainty over U.S. fiscal policy remains entrenched. Despite government debt of approximately $40 trillion, no effective spending-cut measures have been put forward. Amid rising military spending and a bias toward economic support measures, the market is questioning the impact of the plan to double purchases of long-term bonds. The U.S. 10-year Treasury yield remains elevated at 4.60% to 4.75%.
Specific fiscal consolidation measures from Secretary of the Treasury Bessent are expected to be announced this week. Although markets remain extremely volatile, the prevailing view is that the dollar is in a corrective phase following its decline, while the yen is likely to continue weakening on yen carry trades.
Economic indicators due to be released include Germany's Ifo Business Climate Index and U.S. housing-related data. A notable feature of this week's calendar is the concentration of these releases. A slowdown in the housing market tends to affect the direction of long-term interest rates, and conditions may remain challenging for prospective homebuyers.