The Dollar-Yen exchange rate is gradually testing higher levels. After touching the 145 yen level, the momentum has subsided due to intervention concerns, leading to a cautious and nervous atmosphere.
One reason for the overlapping trading is the succession of negative news surrounding China’s economy. A series of economic statistics have been weaker than expected, and financial analysts have been revising down their outlook for China’s growth. Fitch has also suggested a review of China’s credit rating. Following Evergrande, Country Garden is now facing difficulties in making payments for some of its corporate bonds, raising concerns about defaults. While China delayed its GDP announcement, this time it has decided not to disclose the unemployment rate among the youth, likely to prevent further social issues. Along with the pressure of falling commodity prices, the selling of AUD/JPY and CAD/JPY due to risk aversion is weighing down the Dollar-Yen pair.
On the other hand, the enduring topic in the market is the secondary transmission of inflation in major economies, as demonstrated by the acceleration in UK wage growth. Bonds in various countries are being sold, leading to rising yields. Speculation of central banks lowering policy rates is receding, and the outlook for terminal rate levels is on the rise. In the short term, the market has priced in a 25 basis points rate hike by the Bank of England in their September meeting. Speculation about an ECB rate hike is also rekindling. In the just-released July UK Consumer Price Index, both year-on-year and core year-on-year figures slightly exceeded market expectations. On the other hand, the Bank of Japan has successfully conveyed its commitment to prolonged easing measures to the market following the YCC flexibility. Despite Finance Minister Suzuki and Vice Finance Minister Kanda’s familiar remarks to curb yen depreciation yesterday as the Dollar-Yen reached the mid-145 yen level, the yen’s appreciation response was only temporary. There seems to be a growing sense of confidence in yen selling within the market.
Under the opposing pressures mentioned above, the Dollar-Yen exchange rate is likely to remain in the 145 yen range for a while.
While China’s slowdown puts pressure on Oceania currencies and even the Euro, the ECB is caught in a situation where both rising and falling rate speculations are at play, making it difficult to move decisively. The Dollar-Yen pair is similarly caught in a tight spot.
Today is expected to have a tendency toward a range-bound movement.