Tuesday June 22, 2004 - 09:13:55 GMT
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INVESTICA Ltd - www.investica.co.uk
Economic optimism boosts yen
Optimism over the yen will continue in the short term with confidence over a economic recovery and an eventual tightening in domestic monetary policy. Some caution is warranted, especially as Japanese officials will express concern over a rapid yen strengthening. There is the potential for a medium-term move to at least 107.5, especially if 108.2 support breaks, but with a potential limited corrective recovery first back to 108.8.
The yen strengthened to a high of 108.25 before a retreat to 108.7 in early Europe on Tuesday. There is evidence of stop-loss positions below the 108.0 level and a break of this level could push the dollar sharply lower.
There is continuing optimism over the Japanese economy ahead of inflation data due at the end of this week and there will also be further speculation over a Bank of Japan monetary tightening during the second half of 2004. These factors combined will offer further near-term yen support, especially if the industrial data remains strong.
Caution will be required in the short term, especially as Finance Minister Tanigaki and chief official Mizoguchi have both warned over excessive current movements. There is the potential for further verbal warnings, although actual intervention remains very unlikely for now, especially as there will be greater tolerance of yen strength if the economy is improving.
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