[Today's Outlook] Downside risks remain a concern for dollar-yen

Dollar-yen fell to the ¥152 range in the London market yesterday, but rebounded after holding above Monday's low of ¥152.89, and continued to trade in the ¥153 range. Following the expansion of the U.S. Treasury's long-term Treasury buyback program, the market moved to test the upper end of its trading range in the short term. Although there were periods when Treasury yields and dollar-buying pressure rose in response to the announcement, caution over a recovery into the ¥154 range has become widespread.

The U.S. Treasury announced that it would expand its long-term Treasury buyback operations to up to $6 billion, with the first operation scheduled for the 10th. The increase from the previous scale of around $2 billion was substantial, and some market participants had expected aggressive buybacks, leading to noticeable dollar-buying pressure at times after the announcement.

Looking ahead, if dollar-yen makes a third attempt to return to the ¥152 range and volatility resumes, a failed attempt could intensify dollar-selling and yen-buying. With the year-to-date low of around ¥152.10 in view, the pair is expected to probe lower levels.

Euro-dollar is expected to move in response to the ECB Governing Council meeting. Depending on how much of the outlook for rate hikes has been priced in and on comments from ECB President Lagarde, euro-buying and dollar-selling could emerge. Euro-yen may also be affected by developments at the ECB, and could at times move in tandem with a decline in dollar-yen.

Pound-dollar is expected to continue trading mainly in the $1.35 range, although caution will be needed if the euro makes a major move.