The Bank of Japan declared that its price target had been achieved and indicated that it would adjust the degree of monetary accommodation and continue raising interest rates, while the risk of a US sovereign downgrade and developments in dollar-yen after next week's US midterm elections will be in focus.
In the weekly foreign exchange market, euro-yen remained firm while the yen was weak. Against the backdrop of market expectations regarding the Bank of Japan's intervention policy and the decision to leave interest rates unchanged after the FOMC, dollar-yen was seen edging higher. Tensions also eased at times on buying back of French government bonds and other factors.
Regarding policy announcements in Japan and the US, the FOMC decided to leave interest rates unchanged, raised its economic assessment from “solid” to “strong,” and pointed to the importance of gathering additional information. The Bank of Japan likewise left its policy rate unchanged while effectively declaring that its price stability target had been achieved. It also decided to accelerate the pace of ETF sales.
It was noted that upside risks to prices remain in the Bank of Japan's outlook, including upward revisions to its price forecasts. Going forward, the Bank of Japan may consider rate hikes quarterly with the aim of narrowing the extent of negative short-term real interest rates, and periods of yen appreciation pressure are also anticipated.
Risks after the US midterm elections are expected to include difficult fiscal negotiations and conflict over the debt ceiling, and it was noted that the risk of a US sovereign downgrade could affect the dollar. The market is also considering a scenario of “bad” interest rate rises.
With US economic indicators, including employment data, due next week, the view was expressed that dollar-yen could converge into a range of around ¥156 to ¥158 depending on stock market developments.