Extending yesterday's uptrend, the Japanese yen soared to new multi-week highs against its major counterparts, as concern over the impact of swine flu triggered demand for safer assets.

Investors remained cautious as the Swine flu cases in the U.S. doubled to 40 and Mexico's toll of deaths related to the virus reached as many as 149. Concern among global health officials about other outbreaks spurred an emergency meeting of the WHO.

The World Health Organization (WHO) yesterday raised its pandemic alert level over swine flu outbreak that originated in Mexico from three to four after several cases of the flu was reported in countries outside North America, including Canada, Scotland and Spain.

The WHO raised its alert level to four, which is now just two steps short of declaring a full pandemic, after a an emergency meeting of experts, which was brought ahead by a day because of the international concerns over the outbreak.

Meanwhile, UN Secretary General Ban Ki-Moon expressed concerns over the swine flu out break, saying: We are concerned that this virus could cause a new influenza pandemic. It could be mild, in its effects, or potentially be severe. We do not yet know which way it will go. But we are concerned that, in Mexico, most of those who died were young and healthy adults.

Also U.S. President Barack Obama said Monday that the White House is closely monitoring the swine flu outbreak in the United States, although he believes that it is not a cause for alarm.

Earlier, the European Union issued a warning to its citizens urging them not to travel to Mexico or the United States in the face of the risk posed by the pandemic.

The yen also gained as Japan's retail sales declined less than expected in March and the nation's small business confidence improved in April.

Japan's retail sales were down 3.9 percent year-over-year in March, the Ministry of Economy, Trade and Industry said today, coming in at 11.723 trillion yen. That was better than analyst expectations for a 4.9 percent annual decline following the 5.8 percent fall in February. On a monthly basis, retail sales were down 1.1 percent - worse than forecasts for a 0.4 percent decline following the revised 0.2 percent contraction.

Confidence amongst Japanese small and medium sized companies rose to 30.8 in April from 30.4 in March, a report from the Shoko Chukin Bank showed. Economists were expecting the indicator to rise to 31. A reading below 50 suggests that pessimists outnumber optimists.

The Bank of Japan, or BOJ, begins its two-day monetary policy meeting today. The policy board is expected to keep the BOJ's target for the unsecured overnight call money rate unchanged at 0.1%.

On April 07, the Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations. The previous change in interest rates was a 20 basis point cut implemented in December 2008.

While announcing the rate decision, the central bank said it will accept loans on deeds to municipal governments as eligible collateral and also broadened the range of eligible collateral for loans on deeds to the government and those with government guarantees.

Against the US dollar, the Japanese yen traded higher during early deals on Tuesday. Currently, the yen is trading at a 1-month high of 95.64 against the dollar, compared to 96.77 hit late New York Monday. On the upside, the yen may likely find resistance near the 94.1 level.

The yen surged up to a 13-year high of 87.13 against the dollar on January 21. However, the yen pared its gains thereafter and lost 14% to hit a 5-1/2 -month low of 101.46 on April 06.

The Bank of Japan's decision to broaden the range of eligible collateral for loans on deeds to the government and those with government guarantees helped the yen to bounce back from a 5 1/2 -month low.

Thus far, the yen has appreciated 5.3% against the U.S. currency. Much of the yen's gain came as the deteriorating global economy caused investors to flee stocks and emerging market bonds and reinvest their money in Treasuries.

The Japanese yen that closed Monday's North American session at 126.15 against the European currency climbed to 124.41 in early deals on Tuesday. This set the highest point for the yen since March 12. The next upside target level for the yen is seen around 122.1 against the euro.

Demand for the euro weakened on concern the European Central Bank may lower interest rates and pump additional money into the economy to push down borrowing costs and counter the recession.

Comments from the European Central Bank governing council member Ewald Nowotny's that euro zone rates will stay low for some time and that the central bank is ready to use unconventional policy if needed, also reduced demand for the single currency.

The European Central Bank on April 2 lowered its key interest rates to 1.25%, but the reduction was less than expected despite indications that the 16-nation bloc is sliding deeper into recession.

The Japanese unit that tumbled to a new multi-month low of 137.44 versus the euro on April 06 strengthened thereafter and has gained around 9.3% thus far.

Against the British pound, the Japanese currency edged higher during Tuesday's early deals. As of now, the yen is trading at a 4-week high of 139.07 against the pound, with 136 seen as the next target level. The pound-yen pair closed yesterday's trading at 141.74.

The pound remained under heavy selling pressure after a report showed on Friday that the UK economy contracted more than expected in the first quarter of this year. The latest contraction is the biggest since the early days of the Margaret Thatcher government in 1979.

Adding to pound's slide, a report by property consultants Hometrack said yesterday that the house prices in the UK fell 0.3% month-on-month in April, by the slowest pace in a year. The report said the slower pace of decline in prices reflected a rise in optimism from estate agents due to increased levels of market activity. Year-on-year, house prices were down 10.1% in April.

The British economy is likely to contract 4% this year and will shrink another 1% in the next year, reports said yesterday citing Roger Bootle, an economic adviser at Deloitte & Touche LLP and managing director of Capital Economics.

That was weaker than Chancellor Alistair Darling's prediction for a 3.5% contraction for this year and a 1.25% growth for 2010. The International Monetary Fund sees a 4.1% fall in the British gross domestic product in 2009 and a further 0.4% fall in 2010.

The Japanese unit rose to 82.73 against the Swiss franc during today's early deals, its highest mark since March 16. On the upside, 82.07 is seen as the next target level for the Japanese yen. The franc-yen pair closed Monday's New York deals at 83.75.

Today, the UBS said its monthly consumption indicator for Switzerland rose to 0.99 in March from a revised 0.89 in February, indicating that the downtrend seen in private consumption halted for the time being. However, the indicator is still below its long-term average of 1.50.

The UBS said the prospects for private consumption are becoming increasingly gloomier due to an expected acceleration in the number of unemployed in the course of economic slowdown.

The Japanese yen also jumped to new multi-week highs against the currencies of Australia, New Zealand and Canada.

During early deals on Tuesday, the yen traded near a 6-week high of 52.95 against the NZ dollar and hit a 4-week high of 66.88 against the Australian dollar. If the yen gains further, it may likely target 51.2 against the kiwi and 66.1 against the aussie. The kiwi-yen and the aussie-yen pairs were worth 54.78 and 68.73, respectively at Monday's close.

The Australian and New Zealand dollars fell sharply against amid uncertainty about the potential impact of the flu outbreak on global trade and consumer confidence, spurring investors to sell riskier assets.

The Kiwi also fell on speculation the Reserve Bank of New Zealand will trim interest rates at a policy meeting this week. Analysts expect the central bank to lower rates by 50bps from 3%.

The Reserve Bank of New Zealand cut its Official Cash Rate (OCR) to a record-low 3.00 percent on March 11, thus bringing the total reduction in the OCR to 525 basis points since the round of cuts began more than six months ago.

Key rates are 3 percent in New Zealand and Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations' higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Against the Canadian dollar, the yen edged higher to a new multi-week high of 78.10 at 12:25 am ET. This may be compared to yesterday's closing value of 79.28. If the Japanese currency gains further, 77.9 is seen as the next resistance level.

The Italian research institute ISAE is set to release the results of business confidence survey at 3.30am ET. Business sentiment is seen at 61.2 in April, up from 59.8 last month.

At 4.00am ET, Italian retail sales as well as the results of non-EU trade are due from the statistical office ISTAT. Retail sales on a yearly basis are forecast to fall 1.3% in February.

The Confederation of British Industry is scheduled to issue monthly Distributive Trade Survey at 6.00am ET.

In the New York session today, the S&P/Case-Shiller home price index is scheduled to be released at 9:00 am ET. Economists expect an 18.8% year-over-year decline in the 20-city composite house price index in February.

The Conference Board is set to release its consumer confidence report for April at 10:00 am ET. The survey, which is based on a survey of 5,000 US households, is expected to show that the consumer confidence index will modestly increase to a reading of 29.9 from the previous reading of 26.0.

Also, the Federal Reserve Bank of Richmond will publish its manufacturing index for April at 10:00 am ET. Analysts expect the headline figure to drop to minus 17 from minus 20 posted in the previous month.

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