Market Review - 30/08/2010 22:46 GMT

The Japanese yen rises broadly as BOJ's easing move disappoints investors

The Japanese yen strengthened against major currencies on Monday, as investors worried that BOJ's easing measures are not aggressive enough to weaken the yen's gain.

Although the greenback rose initially against the Japanese yen as the news reported that BOJ would hold an extraordinary emergency meeting and the pair climbed to an intra-day high of 85.91 in Asian morning, dollar tumbled from there after the results of BOJ's emergency meeting and extended its weakness to 84.55 in Europe following the comments from BOJ's Shirakawa. Later, despite the greenback's recovery to 84.82 on short-covering, renewed selling interest emerged at there and dollar fell again to 84.50 in late NY trading session.

The greenback was pressured by cross buying in yen, as eur/jpy, aud/jpy and gbp/jpy tumbled from 109.56 to 107.02, 77.51 to 75.41 and 133.67 to 130.67 respectively.

The Bank of Japan released the results of the emergency meeting and stated that the central bank kept interest rate unchanged at 0.1% and the policy board decision on call rate was unanimous. BOJ said the volume of funds offered in fixed-rate market operation was raised to 30 trillion yen from 20 trillion yen. The central bank kept economic assessment unchanged and economy showed further signs of moderate recovery, likely on recovery trend, and it would be important to pull Japan out of deflation. BOJ added that it needed to pay more attention to downside risk while forex and stock market have recently been unstable. There would be uncertainty about future, especially for US economy. The results of the meeting disappointed investors as the measures were just an extension of the existing plans.

BOJ's Shirakawa said downside risk for Japanese economy was increasing and current amount of JGB was appropriate. Shirakawa indicated policy steps would not be bound by yen and stock moves, and current yen rise was due to investors' risk aversion. He added forex, stock markets were unstable and there was no big gap in view of economy with government. Shirakawa expects emerging economies to continue strong expansion.

U.S. stocks fell sharply on Monday, as DJI closed the day down by 141 points or 1.39% at 10010. S&P-500 and Nasdaq sank by 1.47% and 1.56% respectively. U.K. market was off on Monday for British summer bank holiday.

In other news, U.S. President Barack Obama said that he and his economic team discussed additional steps to promote economic growth, including extending tax cuts for middle class and businesses, rebuilding infrastructure and investing in clean energy research and development.

Earlier, the greenback was initially supported by the firmness in Nikkei-225, as it closed the day above 9000 at 9149, up by 1.76% or 158 points.

Despite the single currency's early rise to 1.2775 on cross-buying in euro in Australia, profit-taking offers pressured the single currency and euro ratcheted lower from there and remained under pressure throughout the day. The single currency eventually hit an intra-day low of 1.2659 in late NY trading session.

Eurozone business climate came in at 0.6 versus the expectations of 0.7 whilst consumer sentiment in August was -11 against the economists' forecast of -12.

Although the British pound strengthened in Asia and rose above last Friday's high of 1.5543 to 1.5558 partly due to cross-buying of sterling versus yen and euro together with the rise in Asian bourses, cable retreated from there to 1.5510 on profit-taking. Later, despite sterling's strong rebound to an intra-day high of 1.5577, cable retreated from there and tumbled to an intra-day low of 1.5456 in NY afternoon.

Economic data to be released on Tuesday include: U.K. Gfk survey, Japan Manufacturing PMI, Industrial prod'n, Retail sales, Construction orders, Housing starts, Australia Current account, Retail sales, Germany Unemployment rate, Unemployment change, EU HICP final, Unemployment rate, Canada GDP, U.S. Chicago PMI, Consumer confidence, FOMC meeting minutes.