The U.S. dollar is likely to move in a narrow range against the yen this week in trading expected to lack a strong sense of direction.

“There aren’t many factors to focus on except the European Central Bank meeting. Attention is likely to wander from dollar-yen trading,” said Hideyuki Tsukamoto, a foreign exchange manager at Fuji Bank.

Many dealers said they expect the dollar to trade between 118 yen and 121 yen, with a few saying they foresee a drop to the 117 yen level.

The dollar was trapped last week in a tight range between 119.55 yen and 120.94 yen in a market that remained concerned about U.S. weakness.

On Tuesday, the U.S. Federal Reserve cut the target for the federal funds rate by 0.25 percentage point to 3.5 percent, a move that the market had already largely discounted.

However, the downbeat statement the Fed issued in announcing its rate decision cast a pall over the U.S. currency, dealers said.

“Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy,” the Fed said. “The weakness of the U.S. economy is a theme that is going stay at center stage for the time being,” said Daisuke Uno, chief market analyst at Sumitomo Mitsui Banking Corp. Masahiro Ishikawa, a currency market analyst at Bank One in Tokyo, agreed, saying players are anxious to test the dollar’s downside. He noted a wave of dollar-selling could be triggered Thursday by the ECB’s policymaking meeting.

“If the ECB lowers interest rates (this) week, the euro could be bought against the dollar,” he said. “This might lead to dollar-selling in the yen and the dollar could briefly drop to as low as 117.50 yen.”

Dealers said they will be watching for any comments that U.S. officials might make on foreign exchange. “The market is full of suspicion about whether the strong-dollar policy is being revised. We will be sensitive to comments that could give us a clue as to what the authorities are thinking,” said Takayuki Togawa, a foreign exchange manager at Tokai Bank. Meanwhile, the disheartening economic picture in Japan could make players wary of actively selling the dollar against the yen, dealers said.

The benchmark 225-issue Nikkei Stock Average hit a new 17-year closing low of 11,126.92 on Thursday, while government sources said Japan’s seasonally adjusted unemployment is certain to hit 5.0 percent in an official report for July due out this week, reaching its highest level since the government began reporting monthly jobless figures in 1953.

Comments by Japanese authorities and fears of dollar-buying intervention could also lend support to the dollar, dealers said.

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