RTTNews - Monday in Asia, the yen registered strong gains against its major counterparts after Japanese voters handed the opposition Democratic Party of Japan a landslide victory over the long-ruling Liberal Democratic Party, spurring optimism the new government may stimulate the economy.
The DPJ, led by 62-year-old Yukio Hatoyama, captured a record 308 of the 480 seats in the lower house of parliament. Prime Minister Taro Aso indicated he would resign as head of the Liberal Democratic Party, which lost almost two-thirds of its lawmakers in a complete reversal of the last election in 2005.
The DPJ has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and limiting the power of bureaucrats.
Japanese politics now enters a new phase. The LDP is no longer the largest party in parliament for the first time since its formation in 1955. Never before had an opposition party won the majority in the powerful lower house. The shakeup comes 16 years after the LDP briefly fell from power for the first time.
Investors are now waiting to see exactly what policies the new government will follow and how it will differ from the old. DPJ officials have said they would respect the independence of the Bank of Japan and are unlikely to intervene to weaken the yen, maintaining Japan's five-year absence from currency markets.
Japan's economy grew an annualized 3.7 percent in the three months ended June 30, the first growth in four quarters, after an 11.7 percent decline in the first quarter of the year.
To finance an economic aid package that would total 16.8 trillion yen in 2013, the DPJ says it will eliminate 9.1 trillion yen in unnecessary spending, tap special accounts managed by the nation's bureaucrats and abolish some tax deductions.
The yen's uptrend was also buoyed by better-than-expected Japan's industrial production and retail sales reports published this morning.
Japan's industrial output grew for a fifth month in July as global stimulus spending boosted export demand and manufacturers forecast the sector would gain momentum through the quarter.
The Ministry of Economy, Trade and Industry said that industrial production in Japan was up 1.9 percent in July, beating forecasts for a 1.4 percent increase. On an annual basis, output fell 22.9 percent compared to forecasts for a 23.1 percent contraction after the 23.5 percent decline in the previous month.
Another report showed that retail sales in Japan were down 2.5 percent on year in July, beating forecasts for a 3.5 percent decline after the revised 2.9 percent contraction in June. On a monthly basis, retail sales were up a seasonally adjusted 0.4 percent versus expectations for a 0.5 percent fall.
In addition, a survey of purchasing managers also showed manufacturing activity rose its strongest level in nearly three years. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 53.6 in August, the highest level since November 2006, from 50.4 in July.
The index also remained above the 50 threshold that separates contraction from expansion for the second month in a row.
A drop in most Asian stocks also supported the Japanese currency. Japan's 0.1% interest rate help speculators get funds with low borrowing costs and invest where returns are higher. Speculators profit due to the spread between both rates. Nevertheless, currency fluctuations can erase profits between the two rates.
A stronger yen also makes Japan-made goods less competitive overseas and deflates exporters' earnings abroad when converted back into the Japanese currency, hurting their profits and weighing on the export-dependent economy.
Japan's benchmark Nikkei 225 index is currently trading 14.14 points down or 0.13% at 10,548.28.
In other regional markets, South Korea's Kospi Composite was down 1%, and New Zealand's NZX-50 lost 0.43%.
The Shanghai Composite tumbled 5.4% on concerns over a fall in bank lending, which pushed Hong Kong's Hang Seng Index down 1.8%.
The yen gained more than 1% against the U.S. dollar from Friday's close of 93.65 to reach its highest level in almost 7-weeks in Asian deals on Monday. At present, the yen is trading at 92.56 per dollar. If the yen climbs further, it may find resistance around the 91.8 level.
After hitting an 8-week low of 97.8 on August 07, the yen advanced more than 5% against the dollar as the Japanese economy pulled out of its worst recession since World War II in the second quarter on government stimulus measures and strong exports.
During Asian trading on Monday, the yen soared to a 7-week high of 150.23 against the pound. This may be compared to last week's close of 152.41. On the upside, 147.2 is seen as the next target level for the Japanese currency.
The pound declined despite a report from the Hometrack showed today that house prices in U.K. rose for the first time in 25 months in August.
The average cost of a home in England and Wales rose 0.1 percent from July to 155,800 pounds, the London-based property research company said in an e-mailed statement. The increase, the first since July 2007, left house prices 6.7 percent lower than a year earlier, the smallest annual decline in a year.
The pound that jumped to a 9-month high of 163.13 against the yen on August 07 has slipped 8% since then as reports added to concern the U.K.'s worst recession since World War II may have further to run, reducing demand for the nation's assets.
Government reports showed last week that the U.K. economy contracted for a fifth consecutive quarter and business investment slumped by the most in 24 years even after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and decided to spend 175 billion pounds ($285 billion) to purchase bonds to stimulate the economy.
Britain's gross domestic product contracted 0.7 percent in the second quarter, the Office for National Statistics said on Friday, a day after it reported that business investment fell 10.4 percent from the first three months of the year.
The yen that closed last week's trading at 133.93 against the euro strengthened to a 12-day high of 132.20 in Asian deals on Monday. The next upside target for the Japanese currency is seen around the 127 level.
The yen jumped to a 4-week high of 132.2 against the euro on August 19. Although the yen lost 3% thereafter, it rebounded after touching a 10-day low of 136.11 on August 24.
Overall, the euro lost 1% against the yen last week despite encouraging economic reports from Europe.
Reports showed last week that Euro-zone industrial new orders recovered in June, German IFO business climate improved in August and the GfK consumer sentiment rose to a 15-month high in September. In addition, the Euro-zone economic sentiment climbed more than expected in August.
In Asian deals on Monday, the yen edged up to a 12-day high of 87.30 against the Swiss franc. On the upside, 86.9 is seen as the next target level for the Japanese currency. At last week's close, the franc-yen pair was quoted at 88.40.
The yen that tumbled to an 11-day low of 89.66 against the franc on August 24 has gained 3% since then.
Against the Canadian dollar, the yen climbed to a 12-day high of 84.51 in Asian deals on Monday. That was up 1.5% from last week's close of 85.83. If the yen advances further, it may likely target the 84.1 level.
Canadian Finance Minister Jim Flaherty, who warned earlier this month that steps could be taken to curb a sharp rise in the Canadian dollar, said yesterday he was pleased with the currency's recent stability.
Flaherty said he had been hearing complaints from businesses that volatility in the Canadian dollar was making it difficult for them at a time when the country was already struggling to revive its economy.
During Asian deals on Monday, the yen rose to a 10-day high of 63.11 against the New Zealand dollar and a 4-day high of 77.61 against the Aussie. The next upside target level for the yen is seen at 62.6 against the kiwi and 77.4 against the aussie. The kiwi-yen and the aussie-yen pairs were worth 64.11 and 78.86, respectively at Friday's close.
The dollars of Australia and New Zealand, which like Canada's tend to rise and fall with commodity prices.
Tumbling Asian stock markets, led by a 5.4 percent fall in China's benchmark, provided a negative cue for crude. Oil investors often look to stock markets as a barometer of sentiment about the economy.
U.S. crude for October delivery fell 33 cents to $72.41 a barrel by 12:02 am ET, erasing the previous session's gain of 25 cents. London Brent crude fell 45 cents to $72.34 a barrel.
The Italian and the Euro-zone preliminary CPI reports for August and the Italian June retail sales are expected in the upcoming European session.
From Canada, the second quarter GDP report is due at 8:30 am ET.
At 9:45 am ET, the Chicago PMI for August has been slated for release.
Investors are also cautious ahead of a busy week in terms of data and central bank meetings. The U.S. payrolls report on Friday is expected to show a drop of around 225,000, which is in line with the recent trend of continued improvement in the labor market.
Central banks that are scheduled to meet this week include the Reserve Bank of Australia and the European Central Bank, while the Group of 20 is due to meet in London on September 4 to 5.
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