The decline in dollar-yen volatility is clear, and although U.S. long-term interest rates are expected to provide support, further upside is likely to be limited. Ahead of major events next week, including the FOMC, the Bank of Japan meeting and the U.S. midterm elections, the market is showing a tendency to remain on the sidelines.
In overseas markets yesterday, dollar-yen fell temporarily to ¥157.84 before rebounding to around ¥158.34 following reports from the U.S. government, but it subsequently struggled to gain further ground after the government denied the reports. Euro-dollar fell amid growing concerns over worsening French public finances, and euro selling generally prevailed.
In today's Tokyo market, the dollar-yen trading range has narrowed further, and the pair is expected to remain locked within a range. Daily trading ranges have been narrowing since the start of the week, with the decline in volatility becoming pronounced.
Ahead of next week's monetary policy events in Japan and the United States and the U.S. midterm elections, market participants are expected to refrain from actively building positions. Trading is expected to remain quiet ahead of the events.
The main fundamental supporting dollar-yen on the downside is the high level of U.S. Treasury yields. Although crude oil prices are falling, their level remains high, supporting demand for dollars. At the same time, the information strategy of the Bank of Japan and the Ministry of Finance is also being viewed as a factor limiting the pair's upside.