Dollar-Yen Rangebound as FOMC Minutes and BOJ Hike Expectations Keep Traders Cautious

The dollar-yen exchange rate is expected to hover around 158 yen per dollar in Tokyo trading on October 7, with limited movement due to conflicting pressures. The yen is under pressure from fading expectations of an early rate hike by the Bank of Japan, while a decline in U.S. long-term yields is restricting gains for the dollar. The release of the Federal Open Market Committee (FOMC) meeting minutes early on October 8 is likely to keep traders in a cautious wait-and-see mode.

In New York trading on October 6, the dollar-yen pair reached 158.22 yen before dropping to 157.92 yen, ultimately closing at 158.15 yen. Comments from Bank of Japan Governor Kazuo Ueda and Policy Board member Takehiro Sato reduced market expectations for aggressive rate hikes, leading to yen selling. Meanwhile, a wider-than-expected U.S. trade deficit in August, reported at $105.6 billion, weighed on U.S. long-term yields and triggered dollar selling, capping the pair's upside.

Market attention is also focused on the FOMC minutes from the September meeting, which could influence expectations for a Fed rate hike. The probability of a rate hike at the October meeting has dropped to around 20%. From a technical perspective, the pair's ability to break above the 200-day moving average at 158.53 yen will be a key factor in determining its direction. Additionally, potential currency intervention by Japanese authorities and geopolitical risks, such as tensions in the Strait of Hormuz and the Russia-Ukraine war, could further impact the pair's movement.

Key economic indicators set for release include Japan's August Monthly Labour Survey and the August Index of Business Conditions, which could influence the Bank of Japan's policy decisions. In North America, the FOMC minutes, August consumer credit data, and a 10-year U.S. Treasury auction are also on the agenda. The expected range for the dollar-yen pair is 157.40 yen to 158.80 yen, with potential volatility ahead of the FOMC minutes release.