*Last Updated February 26, 2006, 11:41 pm

Daily report by CMC Markets

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FOREX ANALYSIS

Yen finds strength in speculation over BoJ rate hikes

February 27th - Renewed speculation that a shift in monetary policy by the Bank of Japan is now imminent has seen the Yen gain significant ground against the dollar through the overnight session, despite concern that a raft of numbers due from the US this week could point to an overheating economy there too. Starting the week just past 117, USD/JPY has dipped as low as 115.75 before initiating a small retracement in the last few hours to settle around the 116.10-20 region. Obviously any strong numbers out from Washington could further calls for another rate hike from the Fed and this may well drive the greenback higher across the board, but given the length of time Japanese cash yields have been so poor, if current predictions prove true then the flurry of Yen buying can be of little surprise. Japanese industrial production and retail trade data due later in the day will doubtless come under scrutiny too as traders look for the positive momentum to continue. Any repeated suggestion that the economy may not be as strong as had been hoped for could easily see the recent Yen gains reversed, but assuming we remain on course to see a more normal monetary policy being adopted such a move remains far from likely.

Paul Jackson and Enis Mehmet



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