Expectations of further increases in U.S. interest rates are partly encouraging investors to take money out from Asian stocks. Fund outflows have been weighing on regional currencies.
The stronger economic outlook is positive for the stock market and may encourage more fund inflows to Asian countries such as South Korea and Taiwan. Such flows are supporting the currencies.
It is highly likely that the 2 trillion yen buying in August reflected the market's expectations that Koizumi's victory will support the stock market, and that foreign buying could take a respite this month.
Prospects for widening rate differentials between the U.S. and economies such as Japan and Europe helped the dollar this year and will continue to do so.
Some investors have piled up their euro holdings rapidly this week, overreacting to the Fed minutes. This long-euro position won't last.
When interest rates increase, they have a capital loss. During a time of ECB rate increases, Japanese investors don't want to buy European bonds.
The dollar-yen will trade in a range of 117-119 yen if the GDP data is in line with the market forecast.
An increase in oil imports means more demand out of Japan for the dollar to buy them.
Most market players have already factored in another 25-basis point hike in the key federal fund rate in the FOMC meeting next month, but whether the Fed will keep raising rates in May depends on economic data, such as the CPI.
Money should flow into Japanese government bonds, including from foreign investors. It wouldn't be surprising for the recent rise in yen interest rates, which had been ignored by the market until now, to garner attention.