The dollar-yen rate could remain in a holding pattern through much of this month, with market participants refraining from taking major positions in a choppy market.
The yen came under upward pressure last month as Japanese companies unloaded their dollar holdings toward the close of the business year, but fears of intervention by the Bank of Japan helped ease the seasonal selling pressure on the dollar.
Still, the euro’s tumble against the yen dragged the dollar steeply lower late last month.
With signs of economic recovery in sight in Japan, foreign investors now appear likely to increase purchases of yen-based investment vehicles this month.
Given the gaps in economic fundamentals and interest rates between Japan and the U.S., as well as fears of BOJ intervention, however, the yen’s topside could be limited.
With many Japanese institutional investors remaining on the sidelines at the start of the new fiscal year, a strong pickup in Japanese investment in foreign securities appears unlikely.
The market is shifting its attention to the maturity of a mass of fixed-term deposits in the government-run postal savings system. There is speculation that a shift away from postal savings accounts to other financial products is afoot.
Also emerging as a focus of attention is the April 15 Group of Seven financial leaders’ meeting in Washington.
It is widely expected in the marketplace that some 10 trillion yen in postal savings accounts will be redeemed in April alone.
Should 10 percent of the anticipated outflow from the postal savings system move into financial products based on foreign currencies, an excess supply of dollars would be dissipated, putting downward pressure on the yen.
The G7 joint statement after a meeting in January said the participants shared Tokyo’s concern over a strong yen.
The remarks could be repeated in a statement after the forthcoming meeting, and the present dollar-yen rate has already been affected by such a possibility.
It remains unclear, however, whether similar remarks will be included in the forthcoming statement on the yen-euro rate.