Thursday January 20, 2005 - 11:16:28 GMT
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INVESTICA Ltd - www.investica.co.uk
The yen was unable to strengthened through the 102.0 level and the US currency strengthened back to near 103.0 in New York before drifting back to 102.6 in early Europe on Thursday. Subsequently, the yen weakened back to 102.85. The Euro was unable to sustain gains beyond 134.0.
Japanese officials have warned over potential intervention while the Bank of Japan also expressed concern over the yen's level for the first time since last May. The Finance Ministry appears very reluctant to accept dollar gains through 100.0 and the verbal intervention is a clear warning to the markets. The situation will still be complicated by the fact that Japan will be very reluctant to intervene ahead of the early-February G7 meetings. Some form of informal intervention is realistic.
There have been media reports that the Chinese central bank could consider a yuan revaluation from mid February. There have also been some speculation over a Malaysian ringgit revaluation which will create further Asian currency demand. The underlying pressure for Asian currency gains and speculation over such a move will offer strong background yen support. The NIkkei index weakened overnight and, with deflation concerns, there will be some doubts whether yen buying offers value below the 102.0 level. There will be a risk that speculative and investor yen demands will diverge over the next 2 weeks ahead of the G7 meetings. This would increase the risk of at least a temporary sharp dollar correction higher.
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