Yen Due For A Correction

Yen volatility will remain high in the short term. There is scope for a very tentative recovery in risk appetite which would lessen immediate yen demand. Without a sustained recovery in risk appetite, yen losses will be measured

The Bank of Japan held interest rates at 0.50% and did not participate in the global interest rate cuts on Wednesday, although it did consider a cut in the emergency Lombard rate. The yen initially retreated following the rate cuts, but it resisted heavy selling pressure as safe-haven demand was still robust and the dollar dipped again late in US trading.

The domestic Japanese data was sharply weaker than expected with a 14.5% decline in core machinery orders for August which will increase fears that the Japanese economy will be more vulnerable than expected. In response, the government announced that it would look for a second stimulus package. The weak data will also tend to increase Japanese resistance to rapid yen gains with the G7 meetings at the end of this week in focus for further potential policy co-ordination.

Risk appetite improved slightly in Asia on Thursday and the dollar was able to regain the 100 level with a move back to highs around 101.30. Markets will remain very cautious with high volatility set to continue and the yen regained ground as European bourses failed to hold initial gains.

Investica
http://www.investica.co.uk

Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.