Monday February 14, 2005 - 11:58:08 GMT
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INVESTICA Ltd - www.investica.co.uk
Deficit doubts hurt dollar
The dollar was unable to push above the 106.2 level against the yen on Friday and the US currency weakened in early Asia on Monday. The dollar dipped to a low of 104.75 and failed to recover significantly in Europe.
The Japanese current account surplus increased by a much stronger than expected 35.1% in the year to December to JPY1.61trn. For 2004 as a whole, the current account surplus increased to JPY18.59trn. The Nikkei index was firm with a fresh 7-month high and investment flows are likely to continue. The data has forced the markets to focus on the US current account deficit and the net balance of payments position will continue to offer strong underlying yen support.
There will also be speculation over capital repatriation. In the very short term, the speculation will focus on the repatriation of US Treasury bond coupon payments while, over the next few weeks, there will be expectations of repatriation ahead of the Japanese fiscal year-end at the end of March.
The latest IMM data recorded an increase in short yen positions of over 14,500 contracts in the latest week, with the net short yen position still over 14,000. The market positioning will still lessen the risk of sharp yen depreciation.
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