21:00 GMT- Jan 8 (global-view.com) Forex traders hit the round running in the new year. It seems like a month since the New Years break already. What makes things difficult has been uncertainty on how the USD should be trading. Last year ended with a widely-held perception by non-forex professionals that it was now time for the USD to trade higher mainly what seems to be cyclical reasons. We don't buy the cyclical argument in favor of the USD, but do feel the unit is currently undervalued against Europe and that Japan has special issues of its own which will have to be addressed in part by a weaker currency.

In the latest week, Japanese Finance Minister Fujii stepped down for health reasons. Mr. Fujii was the architect of what we have felt was an inappropriate policy of encouraging the JPY to strengthen vs. the USD at a time when the government is trying to combat deflation. The Japanese press has been speculating that DPJ kingmaker Ozawa forced Fujii out for policy reasons. Recently elected PM Hatoyama replaced Mr. Fujii this week with his Deputy PM Kan, who almost immediately started to talk the JPY down vs. the USD, suggesting 95.00 might be an appropriate price. Friday saw PM Hatoyama make a rather strange public rebuke of new Finance Minister Kan. This could have been handled in private! Hatoyama said that the government should not make public comments on exchange rates, and that stability is desirable and that rapid moves are undesirable. In response Kan agreed with the PM saying that the markets should determine exchange rates but added he must give sufficient consideration to expectations and hopes held by the business sector on the yen exchange rate.

As we consider this whole episode, we are starting to feel this event was probably mostly for show. Odds are the PM has been hearing complaints from other capitals about the new weaker JPY policy. We believe that Tokyo's desire for a lower JPY is intact and would be surprised to see anything done to reverse a weaker JPY trading pattern.

Another interesting pattern is the dichotomy between Far East economies (ex- Japan) and the West. China and Hong Kong are strong. So is South Korea, Singapore, Australia, India and others. The economic decoupling discussed in the early part of this decade is finally coming to pass. Of note, developing bubbles in the Chinese economy are becoming a persistent topic. China put into place mechanisms to permit margin trading and short selling on the Shanghai Exchange to introduce some two-way risk in that market. There is talk that may CNY will be allowed to gradually appreciate over the year. On Thursday a modest tightening of policy via the Chinese three month bill rate was seen. Its possible that growth in the region could support the rest of the global economy.

The EURUSD continues to trade an unsustainably narrow range of roughly 1.4300 to 1.4400. There has been talk on a couple of occasions this week of official demand for EURUSD at the 1.4300 level followed by selling on top. Thanks to strong demand for commodities out of Asia, the commodity currencies (AUD, CAD and NZD) remain in demand.

Check on the forex forum to see current forex market developments. Also visit the comprehensive global-view.com Economic Calendar for a run down of upcoming forex market events.

John M. Bland has been involved in the forex market for more than 30 years, including as a corporate advisor, institutional trader, fund manager and

independent trader. He is a co-founder of www.global-view.com, the leading forex discussion site and home of the original forex forum. Global-View is a place

where forex traders come for trading ideas, the latest rumor, breaking news and forex trading flows.