The dollar weakened to a low of 109.4 against the yen on Monday before recovering
back...

... to 109.75. The yen also strengthened to a high of 133.6 against the Euro before
retreating back to 134.2 and the Euro extended gains to 134.6 in early Europe on
Tuesday with the yen trading close to the 110.0 level against the dollar.

Confidence in the Japanese economy remains strong with the tertiary index rising
1.0% in June to give a 2.0% annual increase. The Nikkei index strengthened again on
Tuesday with a 1.2% advance to a fresh four-year high before a retreat and the index
ended up only 0.16%. Over the past few weeks, the yen moves have had a very high
correlation with Nikkei moves. The yen will, therefore, tend to find further support
if there are sustained Nikkei gains, but the Japanese currency will also be
vulnerable to a downward correction if the Japanese index retreats.

The latest approval ratings for Prime Minister Koizumi's government continue to show
a gradual improvement. This will reinforce speculation that Koizumi will secure a
convincing victory in the September 11 election with a stronger mandate for reform.
Confidence over reform prospects would offer near-term yen support.

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