The yen may face downward pressure for some time.
While recent developments on the European political scene could potentially help shore up the currency, worries remain over the fragility of Japan’s economy.
There is speculation that the landslide victory of the pro-euro Labour Party in Britain’s general election Thursday will lead to early moves to take Britain into the European single currency zone.
On the other hand, Ireland’s “No” vote regarding the Treaty of Nice on Thursday has cast a long shadow over the planned enlargement of the European Union. The treaty is aimed at including more member states in the union, mainly from eastern and central Europe.
Meanwhile, a report Monday showed a real 0.2 percent fall in Japan’s gross domestic product in the January-March quarter, or a 0.8 percent fall at an annualized rate.
During the first quarter, Japanese exports plunged 3.6 percent, while capital spending remained sluggish.
Thanks to a pickup in speculative demand for household electronic equipment and machinery, consumer spending turned higher but failed to shore up the economy.
An isolated bright spot was a 5.2 percent rise in government spending on public works projects — an increase that was tied to the supplementary budget.
Given the fears surrounding the possible negative impact of structural reforms pledged by Prime Minister Junichiro Koizumi, a strong upswing in the yen appears unlikely in the near term.
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