With expectations for a US rate hike continuing to recede, trends in US-Japan interest rates and crude oil prices are the focus for dollar-yen. The central range is expected to be from the upper ¥156 area to around ¥158, with a break above ¥158.50 likely to be the next turning point.
This report indicates that expectations for rate hikes in the US and Japan are shifting from October to December, and that the dollar-yen downside will depend on crude oil prices and movements in US long-term yields. Following remarks by Federal Reserve Bank of New York President Williams, the PCE data and employment statistics, expectations for an October rate hike are viewed as being in retreat.
US long-term yields had returned to around 5.28% after the employment report. Whether they move toward 5.3% or 5.1% will be the focus this week. A move toward 5.3% would leave dollar-yen firm, while a move toward 5.1% could bring a break below ¥156 and levels in the ¥155 range into view.
Although the main views on a Bank of Japan rate hike remain hawkish, the prevailing view is that consecutive rate hikes beginning in October are becoming less likely. Price trends are supporting rate-hike expectations, while some commentators have also pointed to the government's cautious stance as a factor.
Crude oil prices remain in focus as a factor supporting the dollar-yen downside. A renewed rise could increase US inflation concerns and Japan's import costs, potentially pushing dollar-yen higher. The net long yen position in IMM contracts is narrowing, but the move could accelerate if ¥158.50 is breached.