The Yen Will Continue Rising Now. By Nicholas Hastings

If Japanese investors don't push the yen down, then the Bank of Japan will have to step in.

There is certainly little sign that the yen will fall back again of its own accord.

Over the last few weeks, the currency has once again taken off--fueled not only by the latest worries about the global recovery but also by the chronic concern that Greece is going to default.

For Japan, the yen's rise, which has taken it back up to a new one-year high against the euro and pushed the dollar back down under Y90, is not good news.

See the yen's recent strength against the dollar:



Data from Tokyo shows that the Japanese economy remains on a knife edge. Production might be improving but the consumer remains flat on its back and deflation is not about to go away.

The last thing Japan needs now is a rampant yen that will stifle its export growth and make the price of imports even lower.

The problem is that there is little in global developments to change the yen's trend at this stage.

Despite reassurances from Fed Chairman Ben Bernanke this week that the U.S. isn't about to rush into interest rate increases at this stage, financial markets remain concerned that many major countries are looking toward exit strategies from ultra-easy monetary policy before their economies can afford it.

These concerns are showing up clearly in global equity markets, which are being knocked lower as investors head for safe havens--such as the yen. In this environment, driven largely by sentiment rather than by yields, the yen is benefiting even at the expense of the dollar itself.

Events in Greece aren't helping. The European Union continues to show little sign of coming to the country's rescue, even though the government is facing massive strikes over its budget cuts and major credit-rating agencies are threatening to downgrade its debt to nearly junk status.

As the market now waits for the country to make a new bond offering and gauge the extent of global investor support, concern of contagion to larger euro-zone debtors is growing.

All this upward pressure is also coming at the worst time--the end of the fiscal year when Japanese corporations often bring their overseas earnings home. These repatriation flows have often provided yen support in the past and could accelerate the yen's upward trend before the end of March.

However, new data this week show that there could be one major factor working against the yen--the Japanese investor.

Because of the steady deterioration in the Japanese economy, retail investors have started to look abroad with recent figures suggesting that they have now taken up long dollar positions at the expense of the yen.

This, said Darren Smith, a currency strategist with Citigroup, "supports the view that it is premature to back away from a negative outlook on yen."

This must be music to the ears of the authorities managing the yen in Tokyo. But if investor flows don't turn the yen back down again, they may well have to consider taking action themselves to stop the currency from rising any more and further impeding a recovery in the Japanese economy.

Early Friday in Europe, the yen was a little lower as new optimism over the global recovery fed appetite for high yielders.

A lack of fresh news on Greece also lifted the euro, which by 0745 GMT had risen to $1.3575 from $1.3560 late on Thursday in New York, according to EBS.

The single currency was also up at Y121.29 from Y120.76 while the dollar rose to Y89.35 from Y89.06.