*Last Updated February 23, 2006, 1:47 am

Daily report by CMC Markets

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FOREX ANALYSIS

Yen buoyant as trade deficit surprises and BoJ renew pledge for higher rates.

February 23rd - The seasonal impact on exports over the Chinese New Year combined with high oil prices saw Japan record its first trade deficit in five years overnight and although many analysts saw this as nothing more than an almost-to-be-expected blip, there’s been a run of Yen buying as a result. Obviously if imports are on the increase then this bodes well for the country’s economy, but of course with oil prices trading closer to the $60 mark for much of this month it would seem likely that the modest (349bn Yen or less than US$3bn) deficit can be reversed. With US oil supplies seen to be building there’s less concern over the impact supply issues out of Iran or Nigeria may have in the coming weeks although today’s inventory data – delayed by 24 hrs because of Mondays US public holiday – could offer some renewed direction here. Yen support has also been boosted by the fact that – at least by some accounts – the BoJ has sent its strongest signal yet that interest rates will move to a neutral level as soon as CPI stabilises above zero. The comments were made overnight by BoJ Governor Toshihiko Fukui and with strong import demand likely to drive inflation in due course, these latest gains by the Yen may yet prove to be just the start of a longer run of appreciation…

Wayne Roworth and Enis Mehmet



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