Risk aversion and yen buying are intersecting with concerns over U.S. inflation, and dollar-yen is trading in the upper ¥156 range. With central bank events including the BOJ, FOMC and ECB meetings ahead this week, many market participants expect the upside to be limited.
In the New York market, the dollar-yen pair fell as low as ¥156.31 as risk aversion led to yen buying against a backdrop of falling European equities and lower US stock futures. The low during Tokyo hours was around ¥156.08, which was viewed as a solid support level.
Once the selling subsided, US crude oil futures surged into the $103 range as tensions escalated in the Middle East. This, together with stronger-than-expected preliminary US October manufacturing PMI data and the University of Michigan Consumer Sentiment Index, pushed up long-term US yields. The 10-year Treasury yield rose to around 4.99%, contributing to dollar buying.
At present, during Asian hours, the dollar-yen pair is trading around ¥157. Going into the new week, attention should be paid to the New Zealand market holiday and the transition to winter time in Europe. With central bank events ahead, market conditions are expected to make selling on rallies and position-adjustment selling more likely to cap gains.
This week will see policy announcements from major central banks, including the US FOMC, the Bank of Japan's Monetary Policy Meeting and the ECB Governing Council. While the markets widely expect each body to leave policy unchanged, expectations of an additional Bank of Japan rate hike in December and continued pressure for yen buying amid global equity declines and risk aversion remain. Some expect the market's upside from the lower ¥157 range to be limited.