Monday July 12, 2004 - 10:01:36 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen political fears ease
There will be initial relief over the Japanese election result and there is the potential for near-term yen buying. The capital outflows from Japan will, however, certainly slow gains and the strength of bullish yen sentiment is also a warning sign. The yen has the potential for a move to at least 107.5 and potentially 107.1, but is liable to correct from there despite the medium-term potential for a move to 106.5. From a longer-term perspective, the yen offers good value on any dips to 109.5.
The yen regained some poise on Friday as political concerns eased and this trend remained in force on Monday with the yen pushing to a high of 107.5. The projected results in Sunday's Upper-House election showed the LDP winning 49 seats compared with their target of 51. The LDP and Komeito coalition partner will, however, retain a majority and the worst fears did not materialise. Prime Minister Koizumi should be safe for now and there should not be any immediate impact on reform policies. There will still be some longer-term concerns over the political and fiscal situation.
The latest IMM data reported a decline in long yen positions of close to 6,000 in the latest week, cutting the net long position to around 2,500, the lowest for over a month. The lack of long yen speculative positioning will increase the potential for near-term yen gains.
The capital account figures reported net portfolio outflows of JPY3.1trn for June and these capital flows will tend to undermine the yen to some extent. Given that Japan runs a substantial trade surplus, the capital account trends will tend to slow yen appreciation rather than reverse it.
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