Japan leads gains in Asia as the yen is sold off

Most Asian markets got off to a positive start with equities riding the momentum from another record close on Wall Street.

The yen crosses have continued to be a focal point, with yen weakness setting the tone early in Asia and helping to drive equities. USD/JPY has trumped July highs and traded as high as 101.8 in Asia. Meanwhile, EUR/JPY has rallied to its highest since October 2009.

While there aren’t any major releases in Asia today, the favourable risk mood seems enough to keep driving yen weakness. Perhaps the Iran nuclear deal, effectively setting limits to Iran’s nuclear program, has added to the buoyant risk mood as it is the only fresh major development from Friday’s trade. BoJ Governor Haruhiko Kuroda is hosting a luncheon in Tokyo at 15.00 AEDT along with Banque de France Governor Christian Noyer. Speculation ahead of any comments from this luncheon could also be encouraging yen selling in Asia. With the yen on the back foot, the Nikkei has surged 1.3% and is leading the region today.

Big week of data from Japan

From Japan this week we have monetary policy meeting minutes due out tomorrow, which are expected to show officials unanimously agreed to continue with the easing/stimulus program at the current pace. At the end of the week we have retail sales, manufacturing PMI, household spending, CPI, unemployment rate, industrial production and housing starts data due out. CPI is always a talking point given one of the BoJ’s key mandates is its 2% inflation target at the moment.  Japan’s CPI ex-fresh food and CPI ex-food/energy are both expected to show a 0.2% improvement which would certainly be enough to keep the market happy.

I will also look out for weekly fund flows data on Thursday for an indication of outflows/inflows. Looking at the rest of the region, the ASX 200 is also enjoying a day in the sun, while markets in China are relatively flat.

DAX pointing to a fresh high

Looking ahead to the European open, we are expecting a firmer start for the major bourses as they play catch-up to the buoyant risk mood in Asia. The DAX is likely to open at a fresh all-time high should the current opening call continue to hold. There will be plenty to look out for on the European front this week with a lot of emphasis on Germany’s economy.  Out of Germany we will get jobs numbers, inflation and consumer spending readings. There will also be a Senate vote in Italy which could see former PM Berlusconi unseated. Positive releases from Germany would provide a platform for the single currency to extend its gains.

Short trading week for US equities

On the US side, it’ll be a shortened trading week with the Thanksgiving holiday on Thursday, which means no US leads for Asia on Friday. US data kicks off with pending home sales data due out at 14.00 AEDT. Having been down for four consecutive months, the market is looking for this losing streak to be snapped with a 2.2% rise. This will be followed by housing starts and the Case-Shiller readings over the next couple of days as the market will continue to assess the state of the US housing market.

This week will be crucial for some of the interest rate sensitive sectors of the US economy, with the holiday shopping season ramping up. Black Friday will be watched closely from a retail perspective as well as readings on housing and capital goods. While last week was dominated by Fedspeak, this week will be much quieter on that front, which makes the few releases due out important for the USD.

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