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What to Really Watch on the Japanese Yen

Monday, 9 Apr 2012 | 4:36 PM ET

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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