The pressures for a further Bank of Japan response to the severe downturn will tend to weaken the yen, although substantial selling pressure looks unlikely given risk aversion

The dollar found support below the 92 area against the yen on Tuesday despite general weakness in global equity markets. There will be a further suspicion of covert official intervention through Japanese funds to undermine the yen, especially as it failed to gain any significant support from the initial decline on Wall Street.

There was a similar pattern in Asia on Wednesday with the Japanese currency struggling to gain any support from fragile risk appetite. The domestic stresses were illustrated by moves in the debt default swaps with the cost of protecting against a Japanese default on government debt at a record high as budget pressures increase and the economy remains in difficulties.

There will still be some expectations of capital repatriation to Japan ahead of the fiscal year end which will provide some protection for the yen. The dollar was holding just below 92.50 in early Europe on Wednesday. There will be pressure on the Bank of Japan to announce further monetary support measures on Thursday which would tend to undermine the yen.