"If May FOMC Is Hawkish, Additional Upward Pressure on Yen ↑"

Dollar-Yen Maginot Line at Mid-to-High 150 Yen Range

On the 14th, an employee is organizing US dollars and Japanese yen at the Hana Bank Counterfeit Response Center in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Hi Investment & Securities forecasted that the dollar-yen exchange rate could face increased upward pressure following the results of the May Federal Open Market Committee (FOMC) meeting. They also analyzed that the Japanese government's perceived dollar-yen threshold will likely remain around the mid-to-high 150 yen range for the time being.

Park Sang-hyun, a researcher at Hi Investment & Securities, stated, "The direction of U.S. Treasury yields and the dollar will be largely influenced by how hawkish (monetary tightening) the May FOMC meeting turns out to be. The yen's direction is expected to be significantly affected by the FOMC meeting and key U.S. economic indicators such as the ISM manufacturing index and employment data."

Park explained, "If the FOMC meeting results are more hawkish than market expectations (indicating the possibility of additional rate hikes), the dollar will strengthen further, increasing upward pressure on the dollar-yen exchange rate." In this case, he anticipated intense battles between the foreign exchange market and the Japanese government over the 160 yen level, leading to heightened yen volatility.

Park also diagnosed, "Conversely, if the FOMC meeting results are hawkish but in line with market expectations, the dollar-yen exchange rate could decline further due to stabilization measures by the Japanese government."

Park pointed out that volatility in the dollar-won exchange rate is also inevitable. The Korean won shows a high degree of synchronization not only with the FOMC meeting outcomes but also with the dollar-yen exchange rate.

He observed, "If the Japanese government intervenes directly in the foreign exchange market and the dollar-yen exchange rate stabilizes somewhat, the won could also face further depreciation. Conversely, if the dollar-yen exchange rate rises further due to a hawkish FOMC meeting outcome, the won is likely to approach the 1,400 won level again with an upward trend."

He added, "If volatility in the global foreign exchange market fails to subside and instead expands, global capital flows may shift more strongly from risk assets to safe-haven assets, so it will be important to monitor the stability of the dollar-yen exchange rate."