While dollar-yen was temporarily bought back to the 154 range in the New York market, market caution is spreading over the rapid pace of yen appreciation over the past week.
In today's New York foreign exchange market, dollar-yen was bought back to the 154 range, but the yen's appreciation has proceeded rapidly, with the yen temporarily strengthening to the 152 range during Tokyo trading hours. Despite hawkish remarks from Federal Reserve officials and a strong US jobs report, both of which supported the dollar, the yen was bought in an unusual development.
Changes in expectations for the Bank of Japan's monetary policy were also cited as a factor. A series of hawkish remarks has strengthened market expectations that the pace of rate hikes will be faster than previously assumed. However, many in the market believe that the speed matters more than the level.
The ECB Governing Council meeting is scheduled for this week, and while a rate hike is widely seen as certain, attention is expected to focus on a possible upgrade to the growth outlook and indications of the ECB's future policy direction. The euro area's relatively resilient economy is the backdrop, and the ECB is expected to maintain a hawkish stance.
Yen appreciation is likely to weigh on exporters' shares in the short term, while the yen could also continue to serve as a destination for funds moving away from the dollar. Views have emerged that the market will remain volatile against the backdrop of a narrowing gap between Japanese and US monetary policy.