THE yen, after remaining dormant in January, surged back into the spotlight gaining 2.7 per cent against the US dollar and 2.9 per cent against the deutschemark last week. Underpinning the yen's rise was speculation that Group of Seven (G-7) industrialised nations' policy makers would try to force yen appreciation to redress the global trade imbalance. Japan's trade surplus against the US rose 14 per cent last year and is expected to continue to widen over the next 12 months. Japan's willingness to talk about a stronger yen at the G-7 finance ministers meeting on February 27, and at yesterday's meeting between US treasury secretary Lloyd Bentsen and Japanese finance minister Hayashi, as a solution to the trade imbalance has shifted sentiment in favour of the Japanese unit. After having risen strongly, the yen is likely to experience some profit-taking at the beginning of the week, possibly falling back to 122.3 yen to the dollar. However, technical analysis indicates the yen is set to move to record high levels against the dollar and deutschemark. Sterling suffered again last week closing at US$1.419 and 2.347 deutschemarks, down two per cent and 2.1 per cent, respectively from the previous Friday's close. British retail price inflation hit a 25-year low of a 1.7 per cent year-on-year rise in January. This indicates a mild inflationary trend in the economy and gives the government room to ease interest rates again. Over the week the pound should remain weak as speculation of an imminent interest rate cut persists despite Chancellor Mr Norman Lamont's statement on Friday to the contrary. Also weighing on sterling is the release of unemployment figures which are expected to hit the politically sensitive three million mark and the British government's attempt to win its own party backing for the Maastricht treaty. Support at US$1.40 and 2.30 deutschemarks is liable to be tested in the near term. The Canadian dollar surged up 0.5 per cent against the US dollar reaching its highest levels in three months. Strong foreign interest in Canadian bonds and notes boosted the currency. Charts indicate that the Canadian unit is in a short term upswing and a breach of resistance at 1.25 is likely. US President Mr Bill Clinton is due to outline his fiscal programme on Tuesday. This should cause plenty of US dollar movement over the week as participants weigh up the implications for the country's economy. James Mitchell is an economist at BNP International Financial Services (HK).