Friday April 22, 2005 - 10:04:28 GMT
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INVESTICA Ltd - www.investica.co.uk
Greenspan comments boost yen
The dollar strengthened to a high of 107.4 against the yen on Thursday, but the US currency was unable to sustain the position above 107.0 and was holding below this level in early Europe on Friday with a retreat to just below 106.5. Political tensions eased slightly after a Japanese apology to China.
The subject of the yuan remained an important focus with Fed Chairman Greenspan joining the long list of US officials that have called for a stronger Chinese yuan this week. Greenspan stated that the Chinese authorities would eventually move to change the currency regime and he stated that it would be preferable for China to move as soon as possible given that the peg was starting to damage the Chinese economy. Greenspan's comments will reinforce the speculation over a Chinese move and this will discourage yen selling in the short term. There is also the potential for a wider move into regional currencies. There is still the problem that political pressure from the US will tend to increase Chinese resistance to a policy change, but the economic arguments will eventually prove the decisive factor for a change in China's economic policies.
The yen moves will tend to remain correlated with global growth and the rally on Wall Street will, therefore, actually tend to benefit the yen to some extent. The fears over growth which increased earlier in the week will ease slightly. Nevertheless, there will still be a high level of uncertainty which will limit the scope for yen gains. The Japanese tertiary index fell les than expected for February by 1.0% after a revised 2.4% increase for January.
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