With worries about Sunday’s general election out of the way, the dollar-yen rate has returned to where it stood a week ago.

After falling below 104 yen briefly late last week, the dollar has turned higher and now appears poised to recover the 106 yen level.

The yen’s recent strong showing was mainly due to expectations that the ruling coalition would come through largely unscathed. There was talk that many market participants sold dollars short.

Despite the considerable setback suffered by the ruling triumvirate, the election result was largely within expectations, prompting market participants to adjust their oversold dollar positions. Repeated intervention threats by Finance Ministry officials have also helped shore up the dollar.

All eyes are now back on inflationary pressures in the United States amid concern over rising oil prices, which are fueling fears of further credit-tightening by the U.S. Federal Reserve. Wide interest rate differentials between the U.S. and Japan, with its low interest rates, will continue to work in the dollar’s favor.

Against this backdrop, “samurai bond issues” — yen bonds floated by nonresidents — have shown a marked increase of late. Part of the money raised through the issues is converted to dollars.

Rumors have it that major credit-rating agencies are considering downgrading Japan’s sovereign debt ratings, another negative factor for the yen.

The currency market is also keeping a close eye on moves by Japanese monetary authorities amid speculation that the Bank of Japan will soon end its “zero-interest-rate” policy.

Indeed, BOJ Policy Board members have repeatedly indicated that the ultraeasy money policy will soon end, each time putting downward pressure on the dollar. An upturn in the dollar’s value always prompts Japanese exporters to unload their dollar holdings, however.

With the market locked in a crosscurrent of expectations of a strong dollar and fears of a downturn, the dollar could remain within a narrow range for the time being. I expect the dollar to mainly trade between 104 yen and 108 yen in the coming month.