Fund managers remain convinced the dollar is expensive and will fall against the Japanese yen, according to a Merrill Lynch survey published on Tuesday.

The poll of 222 fund managers between September 1 and 7, running a total of $678 billion of assets, showed 64 percent of respondents said the yen was undervalued, up from 60 percent taking that view in August, although down from 71 percent in July.

Some 48 percent of respondents in September said the dollar was overvalued, compared with 52 percent saying it was expensive a month ago and 47 percent taking that view in July.

We expect the U.S. dollar will continue to slide, with U.S. inflation remaining higher than elsewhere and U.S. growth slowing substantially, Alex Patelis, head of foreign exchange and local currency strategy at Merrill Lynch, said in a report.

The dollar traded at around 117.60 yen on Tuesday, virtually unchanged from the beginning of this year but strongly up from its level around 102.70 at the start of 2005.

Analysis of 16 previous episodes of reversals to current account deficits showed that a currency typically weakened for three years after its deficit reached its highest level, Patelis said.

The top for the U.S. current account deficit appears to have been reached, he said.

In a separate question, the poll showed that more fund managers want the U.S. Federal Reserve to focus on the risk that economic growth may slow than on the danger of higher inflation.

Some 43 percent of respondents said growth risks should be the priority for the Fed, up from 33 percent in August. On inflation, 21 percent said the central bank should be more concerned about rising prices, down from 27 percent taking that view a month ago.

On other currency views in the poll, respondents increasingly regarded the euro as overvalued, with 34 percent taking that view in September, up from 26 percent in August. Some 40 percent of respondents said sterling was expensive, up from 34 percent.

On emerging market currencies, only 12 percent of respondents said they were overvalued, while 43 percent said they were cheap, compared with 38 percent taking this view in August.