Yen Soft In Asian Markets, BoE Minutes And Economic Data Awaited

The Japanese yen remains broadly soft as weighed down by expectation of further easing from BoJ, as indicated by yesterday's BoJ minutes. However, lost is so far very limited with USD/JPY capped well below 79.13 near term resistance. It should be noted that data released earlier this week showed that BoJ's government bond holding totalled as much as JPY 80.97T as of last Friday. The number exceeded BoJ's self-imposed cap of the JPY 80.79T worth of bank notes in circulation.

While the central also said that bond-purchases under the stimulus program are excepted from the rule, the size of the balance sheet would still limit the size of any further expansion in the quantitative easing program. At least, BoJ will remain careful in avoiding an impression of debt monetization. Technically, the strength in yen crosses isn't very convincing so far. And while we'd favor some more upside in yen crosses, we'll remain cautious.

In Europe, Spanish prime minister Rajoy reiterated that he's wait for ECB's decision on bond-purchases before deciding on whether to seek a sovereign bailout. Meanwhile, the Bank of Spain revealed that banks in the country borrowed a total of EUR 375.5b from ECB during July. That was 11% up from June's level and hit a record. Also worth to note is that, it's nearly 7 times of the EUR 52b borrowed last year in July 2011.

EU Economic and Monetary Affairs Commissioner Rehn said yesterday the Spanish government as "an open mind" on the issue. And he's confident that both EU and ECB are ready to "take action once certain conditions are met and if there is a request by some member state."

Looking ahead, UK events will be the main focus in European session. Sterling has recently been struggling to find a clear direction. On the one hand, it's being supported by BoE Governor's King's comment about rate cut as well as stronger than expected CPI reading released yesterday. On the other hand, markets are clear that the recession in UK happened to be worse than expected with -0.7% qoq contraction in Q2. BoE minutes for August meeting will reveal the discussions behind the decision to keep rates unchanged at 0.5% and maintained the asset purchase program at GBP 375b.

It's likely that the vote on rates was unanimous. But policymakers' stance on QE could trigger some volatility in the markets. In addition, employment data will be released and are expected to show 6.5k rise in claimant count in July while unemployment rate was unchanged at 8.1% in June.

A string of economic data will also be released from US today. Headline CPI is expected to slow further to 1.5% yoy while core CPI is expected to be unchanged at 2.2% yoy. Empire state manufacturing index is expected to drop slightly to 7 in August. IIC capital flow is expected to rise to USD 63.5b in June. Industrial production is expected to rise 0.5% in July which NAHB housing market index is expected to dip slightly to 34 in August.

Note that USD/JPY jumped overnight after release of stronger than expected retail sales and PPI. Upside surprise in today's data, especially Empire State index and industrial production, would likely give USD/JPY additional fuel for rebound.