Wednesday October 10, 2007 - 10:10:07 GMT
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INVESTICA Ltd - www.investica.co.uk
Bank of Japan policy in focus
A Bank of Japan interest rate increase on Thursday would boost the yen, although it would be difficult to sustain the gains.
The Japanese currency was unable to sustain an advance against the Euro on Tuesday despite the European calls for firmer Asian currencies. The Japanese currency edged slightly weaker in Asian trading on Wednesday with moves to 117.30 against the dollar and 165.80 against the Euro.
The Bank of Japan will announce its latest interest rate decision on Thursday and the most likely outcome is that rates will be left on hold. The conditions are, however, now more favourable than last month for a rate increase and there is therefore, the possibility of a rate increase, especially as it would deflect any potential G7 criticisms of Japanese policy. The chances of an increase look to be around 30%.
The yen will strengthen if rates are increased or Bank of Japan Governor Fukui signals a November increase, although gains could quickly attract selling pressure if risk tolerances remain high.
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