The Japanese currency will gain some degree of support from speculation over a reduction in overseas bond buying by Japanese institutions. Investors will still be looking to push funds into higher-yielding assets on hope for a global economic recovery. The capital account forces are likely to be closely balanced in the short term, but the net risk suggests that there will be a slightly more cautious tone which will provide underlying yen support and cap any losses. Overall, the dollar is liable to edge weaker towards the 95.60 region.

The yen retained a firmer tone during the remainder of Tuesday with some speculation that Japanese institutions would tend to reduce the buying of overseas bonds. Any sustained reversal in capital account trends could provide important yen support and the Japanese currency consolidated stronger than the 97 level in New York.

The dollar found support close to 96.0 on Wednesday and consolidated around 96.50. There was a more cautious tone in global equity markets, although moves were generally limited with no clear consensus over near-term direction. The near-term currency moves will continue to be influenced strongly by trends in risk appetite and yen buying is still liable to be limited unless there is a substantial downturn in global equity markets.