INVESTICA Ltd ^{The currency specialists}

The domestic economic data has suggested an underlying slowdown with domestic demand generally stagnant while export growth has slowed. There has been some speculation that the Bank of Japan could decide on a cut in interest rates, although this does not look to be a realistic policy option, especially as core inflation has increased.

Yield considerations will remain firmly negative for the Japanese yen. The global risk conditions will remain dominant and the yen will weaken at times when there is a recovery in risk appetite. The overall credit tightening, allied with fears over the global economy, will still provide important net support to the yen and there will be strong inflows at times. There will be the risk of additional capital repatriation during March ahead of the Japanese fiscal year-end.

The Finance Ministry will oppose rapid yen gains from current levels, although the net risks suggest that there will not be serious opposition unless the yen strengthens to beyond the 100.0 level against the dollar. There is scope for net yen gains over the few months despite intermittent sharp losses.

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