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What to Really Watch on the Japanese Yen

If you want to know where the yen is headed, go beyond Japan's current account.

Sure, it was nice when Japan's current account went back into surplus in February - or at least yen traders thought so.

But Steven Englander, head of G10 foreign exchange strategy at Citigroup , says that's not the whole picture. Thanks to persistently negative foreign direct investment, Japan's basic balance - the sum of the current account and foreign direct investment - is still in deficit.

"We are monitoring the basic balance closely because a consistently negative foreign direct investment balance 1) is indicative of lost competitiveness and a poor business climate and 2) a basic balance in negative territory makes JPY more sensitive in the long-term to investor concerns over debt sustainability," Englander wrote in a note to clients.

You heard it here first. Just saying.

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