*Last Updated May 19, 2006, 12:06 am

Daily report by CMC Markets

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FOREX ANALYSIS

Yen retreats against dollar as BoJ remains dovish

May 19th - A combination of some hawkish comments from the St. Louis Fed President and the Bank of Japan’s decision to leave interest rates unchanged as it awaits further evidence that the country’s economic recovery is sustainable helped the dollar consolidate its position against the Yen close to the 111 mark in overnight trade. Consensus seems to be that there may be some shift in Japanese monetary policy in the next few months but with the currency having already appreciated significantly over the last 5 weeks or so, there’s also likely to be an overriding reluctance to undertaking any actions that will result in the JPY posting further gains. Potentially this stands to damage the rather fragile export market but in the longer term as inflationary pressures build, yields on the Yen will have to start ticking upward too. There’s still a steady flow of economic data expected from Japan in due course – particularly towards the end of next week - so there’s no doubting the fact that the currency will remain in focus and although the psychologically important 110 level may be looking secure for the time being, another test of this line would cause few surprises.

Tim Wilbraham and Enis Mehmet



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