Capital repatriation flows should now ease which will lessen upward pressure on the yen. Comments from government officials will continue to be watched very closely and the evidence suggests that Finance Minister Fujii will take a more cautious attitude and avoid comments in favour of a strong yen. Markets will still suspect an underlying agenda for a firm currency which will tend to limit yen selling pressure. Overall, there is scope for a slightly firmer dollar trend, but it will be difficult to make much headway with further immediate resistance close to the 90 level.

Confusion is liable to remain the dominant short-term theme over official policy towards the yen which will increase the risk of volatile trading. In comments on Tuesday, Finance Minister Fujii stated that he would not rule intervention and the comments suggest that rapid en gains have unsettled the government. Underlying nationwide consumer prices also declined 2.4% in the year to August, maintaining deflation fears and there will be pressure for yen gains to be curbed given that a strong domestic currency will exacerbate deflation pressures.

Capital repatriation should now ease which will tend to lessen the underlying upward pressure on the Japanese currency. The yen weakened back to 89.40 in US trading as global equity markets also rallied. Following Fujii’s comments, the yen weakened to beyond 90 with the dollar hitting tough resistance near this important technical level.