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(March 1, 2002) CURRENCIES: JAPANESE YEN--Despite widespread pessimism about the Japanese economy's prospects, the Japanese Yen found some support from talk that Japanese investors were shipping their capital back home before the end of the fiscal year March 31. Japanese repatriation flows in January brought an enormous 3.3 trillion yen back home. Another wave of repatriation could be in store as investors fear a credit crunch at the end of March 31 FY-book closing. The Yen also firmed in the wake of rise in the Nikkei stock index, which followed the Japanese government's stricter regulations on short selling, announced on Wednesday. Also giving yen support were comments from Japanese Economics Minister Takenaka that it may be necessary to consider taking more steps to further stabilize Japan's financial system before the end of the fiscal year. Takenaka specified that it would intermittently take steps if needed in the run up to the end of the current fiscal year on March 31. However, he did not commit to the injecting of public funds into major commercial banks to help them deal with the massive bad loans on their books. This is seen as a necessary step for Japan to move ahead with reforms.

While the repatriation flows may support the yen in the short-term, we remain bearish about Japan's economy after Japanese officials produced a disappointing anti-deflation economic package.

Japan's notoriously shaky banking system may drop another bombshell when it's forced to clean its balance sheet at the end of its March 31 fiscal year. New Japanese accounting rules require banks to show the current worth of their stockholdings rather than book value. They must also end their risky cross-stockholding practice, which has made the banks extremely vulnerable to the stock market's dangerous volatility. So, another financial crisis there cannot be ruled out.

With repatriation poised to slow near the end of March and net outward investment to resume thereafter we expect to see further yen weakness in the weeks to come allowing USD/JPY to target 140 once the 135.00/20 major resistance band is broken.

From a technical perspective nothing very new on the J-Yen. The market is in a trading range between .7415 and .7600 but the long-term trend is still down.

Jean-Jacques Chenier

www.alterama.com

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