Confidence in the yen as a defensive currency is liable to weaken further in the short term as the economy remains under severe pressure. There is cope for a move towards 96.80 against the dollar over the next few days.

The dollar was again blocked near the 94.50 resistance level on Friday with breakout attempts undermined by stresses within the financial sector and Wall Street weakness with the US currency weakening sharply to lows below 93 later in US trading.

Confidence in the Japanese economy is continuing to weaken with the bankruptcy of credit supplier SFCG increasing fears that there will be further major difficulties in the financial sector which would put further downward pressure on credit supply and also further undermine the economy. There has also been unease over the latest trade data which is due later this week. Fears over the economy were illustrated by another 25-year low for the broad Topix share index on Monday.

In this context, the yen is again finding it more difficult to gain safe-haven support and it held close to 93 against the weaker dollar while the Japanese currency weakened to a 5-week low against the Euro. Subsequently, the dollar pushed above 94 as the dollar again challenged resistance levels.