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Dollar/Yen downside risk alert.

The dollar/yen was slightly higher in Tokyo, hitting the 146.10 yen level, as the yen has been heavy around the mid-147 yen level since the overseas markets on 4 April.

With the Nikkei 225 down ¥587 on a closing basis and the Hong Kong Hang Seng down more than 1%, the yen is being bought on risk warnings amid the ongoing weakness in Asian equities. Risk caution from the China sell-off was triggered by rating agency Moody’s lowering its rating outlook for China on 5 May and Hong Kong and Macau yesterday.

In addition, news agencies published an article on the Bank of Japan’s monetary policy meeting to be held on 18 and 19 January this month, which raised awareness of the possibility of a lifting of negative interest rates, leading to increased probability of a rate hike from short-term interest rate market trends and higher yields on long-term Japanese bonds, which strengthened the yen’s buying power.
Yesterday’s speech by Bank of Japan Deputy Governor Himino, in which he was seen to say that it is quite possible to achieve a positive outcome on the exit, was seen as hawkish. Also, BOJ Governor Ueda said today in a speech to the Diet that the situation will become more challenging from the end of the year to next year, leading to expectations of a move towards lifting negative interest rates.

These developments led to expectations of a weaker US dollar against the yen. The change in the outlook for the BOJ’s monetary policy meeting, which was expected to pass without a hitch, could be a major factor. The dollar is moving towards a test of the 145 yen level. Cross yen is also expected to be softer across the board, with euro yen expected to move towards 157.00 yen.

Eurodollar and Pounddollar are likely to move calmly. The Eurodollar is expected to move higher, but the price range itself is contained. The euro is likely to remain weak, but the price range itself is likely to be contained.