The Japanese wholesale prices data was weaker than expected with a decline of 6.6% in the year to May which reinforced the underlying deflation fears. The data will also maintain pressure for the Bank of Japan and Finance Ministry to combat sources of downward pressure on prices. In this environment, there will be strong reservations over the allowing sharp yen gains and there is the potential for further verbal intervention to limit currency advances.
The yen will still gain some very important support from unease over global economic trends and a lack of risk appetite. The yen continued to fluctuate around the 93 level against the dollar in Asian trading on Friday with an apparent lack of appetite for Japanese funds investing overseas significant in supporting the yen.
As risk appetite remained weaker, the yen strengthened to a high of 91.80 against the dollar and 127.80 against the Euro in New York. There was a retreat later in US trading, but the yen still secured its largest weekly gain against the dollar since October.
By: Darrell Jobman
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