The yen is proving broadly resilient in the face of rising equity markets and commodity prices which suggests that there is still significant underlying demand for the currency. The Japanese authorities are liable to warn over excessive moves, but they will be reluctant to actually intervene. Institutional dollar support is likely to increase around the 88 level and an initial dollar bounce is likely from this level. Nevertheless, there is now a greater risk that the dollar will weaken to at least 87.50 over the remainder of this week.

The dollar was still unable to regain any significant ground later in the US session on Tuesday even with solid Wall Street gains and the US currency consolidated close to the 89 level with narrow ranges persisting

The latest economic data did not have a major impact with a further small increase in leading indicators. The rise in commodity prices and demand for high-yield currencies should tend to lessen demand for the Japanese currency with a flow of funds into higher-risk instruments. Nevertheless, the yen is still proving to be broadly resilient and the dollar was drifting weaker back towards 88.60 in early Europe. Markets will inevitably watch comments from Japanese officials very closely with the potential for further verbal intervention to curb any rapid yen advance.