Judging from fundamentals for the yen, including strong share prices and relatively positive economic data, the recent fall of the yen is apparently overdone.
The market is more inclined to the perception that US interest rates will rise further.
While the US Federal Reserve Board is exploring ways to exit from the interest rate-hiking cycle, investors are gaining strong confidence in the strength of Japan's economic fundamentals.
There has been quite strong resistance around 118.20 yen and as the dollar failed to clear that line, it faced selling pressure.
Unless the market can get a firm perception that the US Fed is ending its interest rate hike cycle, the ongoing weakness of the yen may not come to an end.
Reflecting the improvement of economic fundamentals in Japan, inflows into Japanese assets, equities in particular, are likely to grow stronger.
The lower demand at the five-year auction may continue in auctions in the coming weeks. This will lead investors to adopt a wait-and-see attitude for the time being.
As the European Central Bank is turning more hawkish on its rate outlook, capital inflows into euro-denominated assets are expected to grow stronger.
On the other hand, it is now believed that the Bank of Japan will hold interest rates, in effect, at zero for a prolonged period because of strong political pressure.
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