Friday March 2, 2007 - 11:20:04 GMT
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INVESTICA Ltd - www.investica.co.uk
Yen adjustment continues
Volatility will remain an important risk and there is the risk of yen gains to 115.0 against the dollar next week if global equity markets fail to stabilise.
Yen gains accelerated sharply in US trading with a move to highs of 117.0 before the dollar recovered back to 117.60 as the US data offered relief to the dollar. The yen was slightly more stable in Asian trading on Friday at close to 117.70 against the dollar.
The Japanese growth data was stronger than expected with household spending rising over the year for the first time in 13 months while the unemployment rate was slightly lower than expected at 4.0%. The inflation data was subdued with core consumer prices unchanged in the year to January.
Deputy Finance Minister Watanabe was generally optimistic over the economy and forecast further interest rate increases. He also repeated recent G7 warnings to markets over two-way risk in the currency markets. Markets will remain on alert for comments from finance officials and, so far, there does not seem to be alarm over the yen gains. Position unwinding will remain an extremely important short-term factor and volatility levels will remain higher in the short term. There is still the risk of disorderly position unwinding and very rapid gains would be likely to trigger stabilising comments from Japanese officials.
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