The dollar has failed to break resistance levels near the 115.0 level against the yen over the past 24 hours and strengthened back towards 114.30 as Asian equity markets edged lower. The yen also found firm support close to 164.0 against the Euro.

Domestically, the trade surplus increased over the year by more than 60% to JPY1.64trn in September as solid exports were compounded by a surprise fall in imports. The data will tend to support the yen, although a drop in shipments to the US will cause Finance Ministry reservations over strong Japanese currency gains.

US Treasury Secretary Paulson has again called for the Chinese currency to strengthen rapidly. The Chinese authorities have also allowed the yuan to strengthen through the 7.50 level against the US dollar for the first time since the 2005 currency float. There will also be persistent speculation over a further increase in interest rates. The underlying pressure for Asian currency appreciation should provide background yen support and any yuan revaluation could trigger sharp yen gains.