The dollar-yen exchange rate remains stuck within a narrow range around ¥158. The US midterm elections, the situation in Iran and monetary policy turning points in Japan and the United States are expected to determine its direction going forward. Investors are closely watching the real interest rate differential between Japan and the United States and the course of key events.
The dollar-yen exchange rate has remained within a narrow range around ¥158 since the beginning of October. Although the yen has at times weakened against the backdrop of yen-buying intervention by the government and the Bank of Japan and movements in Japanese and US interest rates, the exchange rate has recently become increasingly range-bound again.
The United States continues to lead Japan in terms of real interest rate differentials, and the US advantage is expected to persist even if the nominal interest rate differential narrows. Analysis therefore suggests that the dollar's strength is unlikely to falter.
The focus going forward is said to be on 3 turning points: the US midterm elections on 3 November, developments in Iran, and a possible Bank of Japan rate hike in December and the pace of subsequent increases. These factors are expected to determine the movement of the dollar-yen exchange rate.
Toward year-end, the course of monetary policy in Japan and the United States and developments in energy markets could determine whether the yen strengthens or weakens, while the possibility of renewed intervention is also drawing attention.