Yen Could Be The Fourth Quarter Star. By Gary Stride

It might seem a bit rash to say that the yen could be the star currency in the last quarter of 2009 especially when it's already trading at eight-month highs against the dollar.

But the pure fact that it's doing just that, and seemingly causing no concern to either Japanese exporters or the Japanese authorities gives this scenario some weight.

On Friday the dollar traded below Y90.00 for the first time in seven months on the back of comments from former Ministry of Finance official, Mr Yen himself, Eisuke Sakakibara.

Sakakibara may have left his post of deputy finance minister way back in 1999, however he still has the ability to move markets and he did so last Friday with his comments that the current Ministry of Finance probably did not view current levels in dollar/yen as abnormal even below Y90.0, but probably would below Y80.00.

Now step forward 10 years to the present Finance Minister Hirohisa Fujii. He told U.S. Treasury Secretary Timothy Geithner last Thursday that he was against manipulating the value of the yen, or seeing any currency being devalued intentionally.

Some of the current yen strength can be put down to repatriation flows ahead of the Sept. 30 half year end as exporters take advantage of the April 1st rule change that waived a 40% tax on revenue earned abroad.

However, according to the Bank of Japan's quarterly Tankan survey released in July, large manufacturers expect the dollar to trade at an average of Y94.85 in the 12 months to March 2010.

So with half a year to run, and the Japanese authorities seemingly at ease with a dollar trading at Y90.0, its not beyond reason that instead of easing off yen buying in October, exporters may step it up.

And to end my case for a stronger yen I, or rather BNP Paribas, puts forward the G20 plans for global rebalancing.

The bank says this will be supportive to risk appetite and recent currency trends, in particular working in favor of Asian currencies and keeping the yen extremely well supported.

BNP says this priority of the Group of 20 industrial and developing nations is consistent with the plans of the new Japanese government to rebalance the economy, putting increasing emphasis on domestic demand.

BNP has an initial target of Y88.0 and a medium-term target of Y85.00.

On Monday, the dollar sank to a fresh eight-month low of Y88.23, only reversing slightly after Finance Minister Fujii said he would refrain from commenting on foreign exchange intervention and that some of his recent comments on the foreign-exchange market had been distorted.

The yen also rallied strongly on the crosses with euro/yen sinking to a fresh two-month low of Y129.35 and sterling/yen to a five-month low of Y139.70.

And just one little technical trade to slot in. On Friday, Barclays Capital said that sterling/yen had completed a multi-month Double Top formation on the charts and had turned trend.

The bank now has a downside target of Y136.70 and potentially Y131.00.

Around 0640 GMT, the dollar fetched Y89.48, down from Y89.63 in late U.S. trade Friday, but was higher against the euro at $1.4613 from $1.4686 and also against the pound at $1.5827 from $1.5952 late Friday.