Unease over the global economy will continue to curb support for carry trades in the short term

At the weekend G7 meetings, there were no major comments on exchange rates with members concentrating on the global credit risks and maintaining a similar statement on currencies to the previous meeting.

The lack of significant new comments on currencies will tend to undermine near-term yen support to some extent with reduced pressure for a strengthening of Asian currencies in general.

The impact should be measured with markets also focussing strongly on the global economic conditions. G7 members sounded generally cautious on growth prospects with US officials not sounding confident over near-term prospects. There were further effective warnings over the threat of further debt write-downs with some officials calling the next two weeks as crucial.

In this environment, investors are still likely to take a cautious stance with risk aversion at elevated levels while global stock markets are still generally weak. The yen and Swiss franc should continue to gain short-term support.