The Tokyo market opened with the yen trading above the 140 level against the dollar. This week, the focus is on the dollar/yen pair and the 140 threshold, as expectations suggest that the Federal Reserve will begin new easing measures, while the Bank of Japan is preparing to take steps toward raising interest rates.
Market expectations indicate an increased likelihood of the Federal Reserve raising interest rates by 50 basis points at its upcoming meeting. On Tuesday, these expectations rose to 67%, up from just 30% a week ago.
Since the yen hit its lowest level in 38 years against the dollar last July, it has gained more than 12%, driven by the narrowing gap between U.S. and Japanese two-year interest rates, which has shrunk by around 130 basis points over recent weeks.
If this momentum continues, especially with further flexible guidance from the Federal Reserve or decisive actions from the Bank of Japan, we could see a fresh breakthrough above the 140 level, potentially leading to a challenge of last January’s peak at 127.215 against the dollar.
This movement could prompt companies to adjust their exchange rate assumptions for the current fiscal year, increasing the likelihood of their intervention as buyers and further strengthening the yen’s current position. However, Japanese markets remain cautious, with the Nikkei index down 1.7%.
Ahead of the Federal Reserve’s announcement, there is anticipation for the German sentiment survey, expected to show a slight decline, as well as projections of a month-on-month decrease in U.S. retail sales for August.
