Conflicting Forces On The Yen

The currency had already priced in a Koizumi victory, meaning that post-election gains were very limited. In addition, the US dollar has rebounded as fears about Hurricane Katrina damage have abated somewhat. In fact, economic growth and interest rate differentials look set to boost the dollar further. We view the break of JPY113.50/US$ as a bearish yen signal, and expect further weakness towards JPY115.00/US$, a break of which would set up a move to JPY120.00/US$. The JPY113.50/US$ level now acts as key short-term support.

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