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Currencies: Forex Traders Stay Focused on Japan as Yen's Rally Cools

The market focus is still on Japan today, where a lack of business confidence put an end to the week-long yen rally.

Fiscal year-end concerns led to a large scale repatriation of Japanese yen yesterday, giving a final boost to several days of gains, but that came to a sudden end today when the Japanese government's quarterly business report was released. "A short squeeze on

dollar/yen has turned into a rout following a sharp fall in business confidence," wrote

Mellon Bank's

Global FX News and Views

this morning.

The quarterly report indicated that business confidence -- sentiment about the strength of the current economy -- had slipped to a level indicator of one from 15 in the last quarter of 2000. This is the first drop in Japanese confidence levels in ten quarters.

In the U.S. this morning, a report indicated that fourth-quarter 2000 non-farm productivity levels rose 2.4%, above the expected level of 2%. Third-quarter numbers were revised down to 3% from 3.3%. The mixed set of numbers left the dollar relatively unchanged.

Earlier comments from U.S. Treasury Secretary

Paul O'Neill

stating his intent to continue support of a strong dollar did help push the dollar higher in early New York trading.

The combination of positive news for the dollar and negative news in Japan pushed the dollar higher against the yen today. The dollar was recently trading for 116.14 yen, up strong from yesterday's close of 114.76.

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The yen also is falling sharply against the euro, with the euro recently trading for 108.45 yen, up from 106.74 yesterday.

The dollar is down slightly against the euro today, falling further after the U.S. productivity data was released. The euro was recently at $0.9340, up from $0.9307 at the close of trading Tuesday.

The British pound is making moves this morning based on expectations that the

Bank of England

will cut rates at the end of its two-day session tomorrow. While the U.S. cut interest rates twice, totaling a full one percentage point drop in just over a month, the BOE has been adamant not to follow the lead of the United States. Expectations indicate to the contrary today though, according to


, assuming a 25-basis-point cut to the repo rate, dropping it to 5.75%. The pound was up slightly on the dollar, trading most recently for $1.4612, up from $1.4595 at yesterday's close.

The U.S. currency is gaining on both the Australian and Canadian dollars today. The Aussie currency was recently down just slightly, trading at $0.5469 from $0.5479 at yesterday's close. The U.S. dollar was recently making gains on our neighbors to the north, trading up just marginally at C$1.5115 from C$ 1.5108 yesterday.


Ariel Sharon's

victory in the elections for Israel's prime minister yesterday, the shekel is up just slightly on the dollar today. The shekel reached three-week highs vs. the dollar on the expected win yesterday. While Sharon pledged to unify the country and continue the peace process, his views on peace are vastly different from those of his predecessor,

Ehud Barak

. Barak was willing to give up Israeli-controlled land to the Palestinians that Sharon is not.