Fundamentals

The yen depreciated vis--vis the U.S. dollar today as the greenback tested offers around the 106.90 level and was supported around the 106.05 level. Technically, todays intraday high was just above the 76.4% retracement of the move from 107.75 to 103.75. Data released in Japan overnight saw the May all-industries index rise 0.4% m/m while the May tertiary index fell 0.2% in May. Also, Bank of Japan released its corporate fund demand index overnight and it fell to -16 from -4, evidencing a decrease in funding from banks. As expected, the government revised its fiscal year 2008 economic outlook and growth forecast to nominal growth of 0.3% from the previous 2.1% rate. The government also lifted its CPI forecast to 1.7% from 0.3% while the GDP deflator forecast was downwardly revised to -1.0% from +0.1%. Additionally, the government sees unemployment rising to 4.0%, industrial output falling to 0.8%, and the U.S. dollar averaging around 106.30 in the year to March 2009. The government reported "further rises in crude oil prices, the U.S. economic slowdown and the yen's appreciation have occurred. The economic recovery appears to be pausing, and weak movement has been seen recently." Other data released today saw June supermarket sales off 0.9%, the third consecutive monthly decline. The government also called on households "to take risks" so that "growth can be attained." The Nikkei 225 stock index gained 2.98% to close at 13,184.96. Dollar bids are cited around the 103.65 level. The euro moved lower vis--vis the yen as the single currency tested bids around the 169.05 level and was capped around the 169.70 level. The British pound moved higher vis--vis the yen as sterling tested offers around the 213.70 level while the Swiss franc came off vis--vis the yen and tested bids around the 104.45 level. The Chinese yuan appreciated vis--vis the U.S. dollar as the greenback closed at CNY 6.8217 in the over-the-counter market, down from CNY 6.8300. Data released in China overnight saw the June enterprise commodity price index climb 9.5% y/y. A Chinese government official reported "the tight credit policy will not change in the second half."