Japan Has Little Interest In Stopping Yen Fall - Analyst

I think that's probably the story near-term in that most of the Yen weakness we've seen over the last couple of weeks has really been the counterpart of Dollar strength rather than anything specific to the Yen. If there's a risk in terms of the near term, I think it probably relates much more to what Bernanke says on Wednesday. And if he manages to restore some balance to the outlook for policy in the US, then I do think there is a good risk that the Dollar pulls back from the recent gains and that will also pull Dollar/Yen lower. But it is really a Dollar story rather than a Yen story at the moment. And I would suggest that Japanese policymakers don't have that big an interest in stopping the Yen falling as long as it happens in a relatively orderly fashion. (QUESTION: Well, that was going to be my next question. I mean I ask, you know, can they stop it? Do they really want to stop it right now?)

I think probably not. TheBank of Japan probably feels some discomfort particularly given the pressure that JGBs have been under over the last week. But ultimately, I think policymakers' concern is much more about volatility and how quickly it's moving than outright levels. So they probably like to see it stabilize for a while. But ultimately, no, I don't think there'll be that much more concern if Dollar/Yen traded up to 105 or 110.

(QUESTION: You clearly think the Dollar's going to pull back a little bit on the back of Bernanke. What levels are you looking at?)

I think probably the most leveraged play on that has been over the, if you look at it over the last couple weeks, the commodity currencies. And Aussie/Dollar in particular is, when you get these big Dollar moves, they tend to spill over in commodity prices and you get much more leverage in the commodity currencies. So if I were looking to play it directly, I think probably the most leveraged play is the Aussie/Dollar. And we'd certainly like to see that back to the right side of parity through the course of this week as a near-term target.

(QUESTION: We've got- Draghi's talking in London and he's prone to surprising us, isn't he?)

Yes and I think the bottom line as far as the ECB is concerned is that having opened up the prospect of negative interest rates and effectively at least blur the line of the zero-bounded interest rates, we now have a much clearer transmission mechanism for negative news in the Eurozone to drive the currency through yields. But it requires negative news to get that moving and again there isn't a huge amount on the agenda in the near term. On balance, we think that's the way it works going forward."