Yen Rebounds On Risk Aversion, After Markets Reassess BoJ

The yen, and to a lesser extent, the dollar, rebounded strongly in the Asian session today on risk aversion as sentiments were somewhat weighed down by Chinese economic data. The HSBC manufacturing PMI just improved slightly from 47.6 to 47.8 in September. That's the 11th straight month of contractionary reading and was the longest contraction streak of the reading in history.

More PMI data will be released from eurozone later today in addition to retail sales from UK and Philly Fed survey which could affirm the view of a gloomy global economic outlook. EUR/USD is back trading below 1.3 level for the moment and looks like deeper pull back would be seen in the near-term. Nonetheless, there is no change in the near-term bullish outlook in the common currency in general.

The yen's post BoJ sell-off yesterday was rather brief and staged a broad based strong rebound. Yen's strength carried on to the Asian session today on risk aversion. Also, it seems that markets are not too satisfied with BoJ's QE announcement after a second thought. BoJ raised the asset purchases by JPY 10T, that is around $127b. But that was relatively unaggressive comparing to the Fed's open-ended, unlimited purchase of MBS purchase of $40b per month.

Also, Fed's QE is seen us unsterilized and should have a larger effect on depreciating dollar. ECB's OMT was also seen as "unlimited" in nature even though that would be sterilized. We'll monitor if USD/JPY's jump earlier this week was a false break.

Dallas Fed Fisher, a known hawk, said he "did not argue in favor of additional monetary accommodation" in the last meeting and warned that Fed is "venturing into unknown territory" with its QE and monetary policies. Fisher warned that there is a "noticeable increase in the longer-term inflation expectations inferred from bond yields" and that would "suggest incipient doubts" on Fed's commitment to fulfil it's inflation mandate. But he said he "prayed this latest initiative will work" and he say sign that 30-year mortgage commitments have fallen since the announcement.

On the data front, New Zealand GDP grew more than expected by 0.6% qoq in Q2. Japan trade deficit widened to JPY -0.47T in August, all industry activity index dropped -0.6% mom in July. German PPI rose more than expected by 1.6% yoy in August. Looking ahead, eurozone PMIs are expected to be steady in September. UK retail sales is expected to contract mildly in August. From the US, jobless claims, Philly Fed survey and leading indicators will be released.