Monday February 27, 2006 - 11:15:19 GMT
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INVESTICA Ltd - www.investica.co.uk
Dollar still vulnerable
The dollar stabilised against the yen on Friday, but the US currency was unable to make headway much above the 117.0 level and selling pressure resumed in Asia on Monday with the yen strengthening to a high of 115.65 before a retreat to 116.0. The yen is still in a position to gain from a closing of short positions.
Japanese monetary policy has remained a crucial focus and has continued to underpin the yen with growing speculation that the Bank of Japan will move to tighten monetary policy over the next few weeks. This speculation has been reinforced by the fact that the government appears to be resigned to a policy change. The Economy Minister, for example, effectively state that the central bank can tighten policy and Prime Minister Koizumi also repeated that it was a Bank of Japan decision.
From a seasonal perspective, the bank will probably prefer to wait until April to change policy, but there will be greater speculation over a move in March and this will offer near-term yen support with bond yields rising to a fresh five-year high on Monday. A delay until April would weaken the yen temporarily and the yen will also be vulnerable if Friday's consumer inflation data is weak.
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