Nikkei trends dominate yen

Nikkei trends dominate yen - 23-08-05

The dollar weakened to a low of 109.4 against the yen on Monday before recovering back to 109.75. The yen also strengthened to a high of 133.6 against the Euro before retreating back to 134.2 and the Euro extended gains to 134.6 in early Europe on Tuesday with the yen trading close to the 110.0 level against the dollar.

Confidence in the Japanese economy remains strong with the tertiary index rising 1.0% in June to give a 2.0% annual increase. The Nikkei index strengthened again on Tuesday with a 1.2% advance to a fresh four-year high before a retreat and the index ended up only 0.16%. Over the past few weeks, the yen moves have had a very high correlation with Nikkei moves. The yen will, therefore, tend to find further support if there are sustained Nikkei gains, but the Japanese currency will also be vulnerable to a downward correction if the Japanese index retreats.

The latest approval ratings for Prime Minister Koizumi's government continue to show a gradual improvement. This will reinforce speculation that Koizumi will secure a convincing victory in the September 11 election with a stronger mandate for reform. Confidence over reform prospects would offer near-term yen support.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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