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(March 30, 2002) CURRENCIES: JAPANESE YEN--Next week, the Bank of Japan's Tankan survey should kick off a new round of yen selling as investors begin to reassess the real risks of Japan. Although the survey is expected to improve, most progress will be seen in the expectations of export related businesses due to the US recovery and a weaker yen.

It is also likely that next week the yen will continue to fall vs. the dollar, on recent market disappointment that the second part of government measures to pull out the ailing economy may not come as early as in April, as promised.

Japanese Banks on the other hand will again find themselves in the spotlight as dealers expect the Nikkei to come under renewed pressure next week when the new fiscal year begins and temporary measures to support stock prices fade. A government crackdown on short-selling combined with the prospect of higher US demand driving an export-led recovery in the second half of this year, helped Japanese companies balance sheets and has eased fears of a financial crisis next month, when banks will register their holdings at market value. But starting in April, traders should anticipate a revisiting of familiar topics in Japan, including: deflation, bad loans and reform. Therefore, the yen's recent relative strength should prove short-lived if policymakers continue to muddle and fail to come up with a viable solution. And, with repatriation done, the yen's recent stability is likely to be finished as well and traders will again talk of revisiting the 135 yen level against the dollar.

From a technical perspective, the picture is not very clear. Nevertheless it seems that the June J-Yen should be unable to break the 0.76 resistance while it should find a strong support just below .7500. If the .7500 support does not hold, the market should drop to 0.71.

Jean-Jacques Chenier

www.alterama.com

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