Monday January 17, 2005 - 11:07:06 GMT
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INVESTICA Ltd - www.investica.co.uk
Bank of Japan response?
The yen strengthened to a high of 101.8 against the dollar in New York on Friday before edging back to the 102.0 level in early Europe on Monday. Subsequently, the yen again attacked resistance close to 101.8.
Asian exchange rate policies will remain a very important focus over the next week at least as pressure for stronger Asian currencies continues. The European and US pressure for stronger Asian currencies will continue ahead of the early February G7 meetings. The yen will tend to be used as a proxy for Asian currencies and the speculation over regional gains will increase the potential for capital inflows into the yen. The Nikkei index should also remain strong in the short term which will encourage wider inflows into the yen.
There will still be caution over buying the yen aggressively due to fears over intervention. There will, however, also be speculation that Japan will be reluctant to intervene ahead of the February 4/5 G7 meetings and this will increase the possibility of speculative inflows to test the Japanese authorities resolve. If the Bank of Japan stays out of the market, there is the potential for heavy speculative yen buying. Overall, there is likely to be unofficial intervention through public funds.
The latest IMM data recorded a small increase in long yen positions with the total long yen position now at close to 24,000. This positioning will act as a barrier to rapid yen gains.
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