Friday November 19, 2004 - 10:59:22 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen to strengthen further
Underlying yen strength is likely to continue due to dollar vulnerability and speculation over regional currency gains. There will be market caution as the US dollar approaches the 103.5 level, especially with concerns over the threat of intervention. The yen will gain strongly next week if there are any announcements over a stronger Chinese yuan at the weekend APEC summit. The Bank of Japan is also likely to aim to slow yen gains rather than reverse the trend.
The dollar recovered the 104.0 level in Europe on Thursday, but the US currency was only able to edge back to 104.35 in New York before weakening again.
There have been further comments over Japanese officials designed to slow yen gains with Finance Minister Tanigaki, foe example, stating that Japan would act decisively if necessary. The immediate focus is likely to be on the levels around 103.5. Overall, there is likely to be some increased unofficial intervention at these levels through semi-public institutions. Even if Japan is not seriously concerned over the dollar's level, the authorities will want to slow the US currency's decline. Nevertheless, it appears unlikely that there will be heavy and sustained intervention to defend this level.
There will be further speculation over Asian currency gains with a particular focus on China. In this context, political comments at the weekend APEC summit will be closely watched, especially with President Bush aiming to speak to discuss the yuan with Chinese officials. There is a small chance that the Chinese will announce a policy change, although more generalised and longer-term comments over market reform is the more likely outcome. Underlying speculation over regional currency gains will continue to offer underlying yen support.
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