Yen Mildly Higher, Japan Inflation Accelerated

The yen strengthens mildly in Asian session as equity markets turned soft again. The DOW had another day of mild gain of 16.44 pts and the moves were clearly consolidative for digesting recent losses. The U.S. yields reversed after initial rally with 10 year yield closing down at 2.751% after rising to 2.83% in early trading. Crude oil is back below 108 level as Syria threat cooled while gold hover between 1400/10. In the currency markets, Euro and Swiss franc were notably weaker yesterday as pressured in cross selling. The selloff pushed the euro to be the weakest currency this week, even worse than commodity currencies. Meanwhile, the dollar is generally higher on expectation of Fed's tapering, being the second strongest currency this week so far next to yen.

A string of economic data were released from Japan today. National CPI core rose accelerated to 0.7% YoY in July, hitting the highest level since 2008. Tokyo CPI core also accelerated to 0.4% YoY. Both were inline with expectation. PMI manufacturing improved to 52.2 in August, up from 50.7. Unemployment rate dropped to 3.8% in July, down from 3.9%. Household spending rose 0.1% yoy in July. Industrial production rose 3.2% mom in July. The data were generally positive. Even though the CPI reading is still far from BoJ's 2% target, the trend is promising and showed Japan is moving back to real inflation. And the data would support BoJ to maintain its policies in near term. And technically, yen crosses would likely stay in medium term range for a while.

Elsewhere New Zealand building permits dropped -0.8% mom in July versus expectation of 1.3% mom rise. UK Gfk consumer sentiment improved more than expected to -13 in August. The economic calendar is busy today. Main focus in European session will be on Swiss KOF leading indicator, eurozone confidence indicators, unemployment and CPI. Canada will release GDP and is expected to show -0.5% mom in June. Canadian dollar was supported by the rally in crude oil but it could be back under pressure on GDP miss. The U.S. will release personal income and spending and Chicago PMI.