Thursday August 11, 2005 - 09:44:09 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar faces yen challenge
The yen strengthened to a high of 110.4 against the US currency during Wednesday on continued domestic optimism. The yen also strengthened against the Euro and the Japanese currency pushed to a high near 110.0 in Asian trading on Thursday, remaining strong in early Europe on Thursday.
Oil prices will need to be watched closely and prices around the US$65 p/b level will tend to weaken the yen on trade concerns. The overall balance of payments position is, however, still strong with a seasonally-adjusted JPY1.5trn current account surplus for June and this will limit the potential for yen selling pressure.
International optimism over the economy has continued and the Nikkei index strengthened to a fresh four-year high during Thursday. The latest capital account data recorded net inflows of US$4.47bn in the latest week, reinforcing expectations of overseas inflows. Political concerns have also eased which will lessen the threat of selling pressure on the yen. The Japanese currency still has to overcome the negative impact of low yields, especially with US rate pushing higher.
The regional trends will also tend to put upward pressure on the yen, especially with the Chinese central bank using Asian currencies in the current basket. There is likely to be fresh speculation that the Chinese central bank will aim to reduce the dollar proportion of reserves as well as letting the yuan appreciate in the medium term.
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