Tokyo – The dollar/yen exchange rate faces potential for sharp fluctuations in the coming week, influenced by high-level U.S.-China discussions and upcoming U.S. economic indicators.While optimism surrounds the prospect of improved U.S.-China relations, analysts caution that current expectations may be overly optimistic.

Anticipated Trading Range

• Dollar: 143-148 yen
• Euro: $1.11-1.14

US-China Trade Talks: A Double-Edged Sword

Trade negotiations between the U.S. and China are under close scrutiny. If progress is made in the repair of U.S.-China relations, which had been deteriorating, [the dollar] will be bought, according to Sakai Yuzo, head of Sales Planning Office at Ueda Higashi-Tan Forex. However, Naya Takumi, head of the Foreign Trading Group at Mitsui Sumitomo Bank’s Market Sales Department, warns of potential disappointment: If the expectations are disappointing, there is a possibility that risk sentiment will deteriorate and the dollar will be sold temporarily.

Key U.S.Economic Indicators on the Horizon

The U.S. economic calendar is packed with crucial data releases, including:

• April Consumer Price Index (CPI) on May 13
• Wholesale Price Index (PPI) on May 15
• Retail sales data on May 15

These indicators will be pivotal in shaping the Federal Reserve’s policy decisions, particularly as Chairman Powell remains cautious about potential rate cuts. The data will help determine whether inflation is proving persistent.

Speculative Market and Yen Buying

The dollar experienced a meaningful surge in the week ending May 9, climbing from the 142 yen range to the 146 yen range. Sakai of Ueda Higashi-Ten describes the current market as a speetic market, cautioning about the potential for sudden price movements.

A significant factor is the unwinding of yen-buying positions by speculators, which have reached record levels. Naya of Mitsui Sumitomo Bank notes that with strong U.S. indicators reducing expectations for interest rate cuts and the Bank of Japan hesitant to raise rates, the substantial yen-buying scheme could twitch in the direction of being rewinded.

long-Term Dollar Outlook

While the panic dollar selling observed in April has subsided, the dollar faces headwinds due to adjustments related to changes in U.S. tariff policy and their impact on global trade structures. As countries reassess trade dynamics, a gradual shift away from the dollar is anticipated.

Naya of Sumitomo Mitsui Banking Corporation suggests that there is a possibility that the flow of dollar selling, which is effective like a body blow, will continue as the trade structure evolves.

event Diary & Economic Indicator Forecast

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