Dollar-yen Surges to 158 Range on Stronger PMI Data and Rate Hike Expectations

The dollar-yen exchange rate has recovered to the low-158 range in the Tokyo foreign exchange market, and analysts believe that it may reach its month-to-date high of 160.39. The pair climbed to around 158.40 during New York trading hours on the back of stronger-than-expected U.S. PMI data, which raised expectations for additional U.S. rate hikes.

Takuya Kanda of Gaitame.com Research Institute notes that while there is no fresh buying catalyst, dip-buying emerges on the back of expectations for consecutive Federal Reserve rate hikes and persistently elevated U.S. long-term yields. Despite wariness over government and Bank of Japan currency intervention, dollar-yen will maintain its firm tone, according to FX firms.

The current rise in dollar-yen is driven primarily by dollar strength rather than extreme yen weakness. Kanda cites three reasons why actual re-triggering of yen-buying intervention would be difficult: speculative yen-selling positions have not ballooned, the overall position is likely net yen-buying, and selling U.S. Treasury holdings to fund intervention would run counter to the intentions of U.S. authorities.

In terms of trading volume, Gaitame.com's data shows that overall market activity fell approximately 27% compared with the 20-business-day average, indicating subdued interest. While buy positions remained dominant across the board, sell positions increased day-over-day, and buying momentum receded.