Bullish factors for the yen

The already massive improvement in dollar/yen into the early 2004 lows attracted large amounts of foreign dollars into both Japanese stocks and the yen.

“There is a lot of money waiting for out performance,” says Sean Callow, currency strategist at IDEAglobal.

“Up until recently, the Japanese stock market was performing quite nicely and it drew in a lot of foreign money, which was yen-supportive,” agrees Bob Lynch, currency analyst at BNP Paribas.

Now, analysts say FX traders should keep an eye on the Nikkei index, as additional gains or out performance vs. the U.S. equity market could be a trigger point for a new wave of yen appreciation.

Another factor favoring additional yen appreciation in the months ahead is the expected support from neighboring Asian countries to continue overall growth in that region. Also, in stark comparison to the U.S., Japan is running a huge account surplus, which supports the outlook for the yen. In 2003, the total account surplus stood at JPY 15.7 trillion, and analysts are expecting 2004 figures to match or better that data.