Thursday April 28, 2005 - 10:05:29 GMT
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INVESTICA Ltd - www.investica.co.uk
Event risk supports yen
The dollar traded close to 106.0 for much of Wednesday after finding support close to the 106.4 during Wednesday. The yen regained levels beyond 106.0 in early Europe, supported by the decline in oil prices. The yen also strengthened through 137.0 against the yen.
The Japanese industrial production data was slightly weaker than expected with a 0.3% monthly decline for March. The ministry did, however, revise upwards the forecast for April which will offer lessen any potential yen damage. The retail sales report was also stronger than expected with a 0.6% increase in the year to March. The PMI index also strengthened to 53.3 in April from 52.7 in March which will lessen fears over the Japanese economy to some extent. Given the doubts over US and European trends, any evidence of a Japanese recovery would offer significant yen support.
The Bank of Japan indicated that it would maintain the very loose monetary policy in the short term, but that it would consider a tightening next year as deflation eased. This will only offer very slight support to the yen as there will still be doubts that deflationary pressure will actually ease and the near-term yield considerations will still tend to push capital from Japan.
There will be a series of Japanese market holidays next week and there will also be speculation over a Chinese move to adjust the yuan exchange rate. In this environment, there will be a considerable reluctance to sell the yen over the next 48 hours and this will offer significant near-term support to the Japanese currency.
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