Yen Extends Rally On Weak Asian Stocks

Yen extends rebound as the week starts while Japanese stocks led Asian markets generally lower. BoJ governor Kuroda said in a speech today that he expected moderate recovery in Japan ahead and expressed his confidence on meeting the 2% inflation target. He noted that while not all of these favorable developments are attributable the easing program announced back in April, "it most certainly is an important factor." And, BoJ's stimulus program is working well to end deflation. Meanwhile he's also confident that "a two-step sales tax increase won't give major damage to growth in Japan's economy." As BoJ is buying debt for price stability, he said, "if people think this is financing government spending, long-term yields could raise, rendering monetary policy less effective."

Elsewhere, markets are relatively steady before a number of key events this week. The FOMC meeting is in focus as investors awaited more guidance of QE tapering. Regarding this, the IMF warned last that speculations of Fed's paring of stimulus measures "could lead to additional, and unhelpful, pro-cyclical increases in borrowing costs within the euro area". At the annual assessment of the Eurozone's economy, the IMF added that Fed's reduction in accommodative measures would "further complicate the conduct of monetary policy and potentially damage area-wide demand and growth". Moreover, "financial market stresses could also quickly reignite", resulting in a "debt-deflation spiral" in the 17-nation bloc.

As for today, Japan retail trade released earlier show 1.6 yoy growth in June versus expectation of 2.1% yoy. UK will release mortgage approvals, M4 and CBI reported sales. US will release pending home sales.

Latest CFTC data showed on July 23, investor net positions were relatively unchanged comparing to the prior week, except in Sterling. Euro net shorts dropped for the second week to to -27.9k, from -37.2k. Yen net shorts rose slightly to -87.5k, from -85.8k. Sterling net shorts rose sharply to -49.7k, from -37.4k. Australian net shorts dropped slightly to -64.0k, but isn't far from 2013 high of -70.7k. Canadian dollar net shorts dropped slightly to -16.8k, from -20.0k.