LONDON (AFX) - The yen was well bid in early trade amid talk that pro-reformist Junichiro Koizumi could well become Japan's next prime minister.
Statements to the effect that Japan is not going for a competitive depreciation of its currency given the trouble this may cause its Asian neighbours also helped the yen, Halifax economist, Steven Pearson said.
West LB economist, Michael Klawitter agreed saying that the rally on the Nikkei and an increased likelihood that the reformer Kouzimi will become Japan's next prime minister boosted the yen.
"Some more yen short positions were unwound and dollar-yen declined to the lowest level since the end of March, leaving the risk for further declines towards the 122 area," he added.
The euro remained hovering at the 0.88 usd level with the European Central Bank decision to hold off a rate cut still keeping the single currency under pressure.
The market is now rewarding rate cuts, this is evident from the Canadian dollar's rise after its central bank lowered interest rates, Pearson at Halifax said.
"The euro's broad based weakness against sterling and yen supports this view and clearly leaves the risk in our euro-dollar forecast to the downside," West LB's Klawitter said.
In fact positive economic news, such as the morning's French industrial output data, have been mild setbacks for the euro, Pearson added.
Turning to the dollar, today's release of U.S. Feb trade data should confirm that the 2001 U.S. current account deficit is well on track for a record high.
But this should leave investors little concerned given that foreign demand for U.S. corporate bonds alone is already financing 75 pct of the current account deficit, Klawitter said.
Elsewhere, sterling was little changed.
"As long as the Bank of England's minutes will show that the last rate cut was a unanimous decision, sterling should be little affected given the widely accepted view that the BoE will keep its pro active stance," Klawitter added.