Yen Sell-Off Accelerates

Selloff of the Japanese yen accelerates today on prospect of unlimited easing from BoJ. The weakness started yesterday when current prime minister Noda said that he will dissolve the parliament, which would in turn trigger an election. According to latest poll, the ruling Democratic Party of Japan might lose to opposition Liberal Democratic Party in the election.

And LDP leader Abe is known to be advocating more aggressive easing from BoJ. Indeed, Abe reiterated today his call for BoJ to raise the inflation target to 3%, which is very aggressive considering that the current 1% target is already out of sight. He noted that Japan needs to have "stronger than what the current government is offering" to end deflation. Abe also said that BoJ should cut the benchmark interest to zero or even into negative region. USD/JPY broke through 80.67 resistance while EUR/JPY and GBP/JPY are set to revisit recent highs.

Elsewhere, risk aversion is still dominating markets. Late selloff overnight pushed the Dow down -185 pts and S&P 500 down -19 pts. Asian equities, except Japan, are broadly lower. But major currencies are relatively calm against dollar, except that Sterling maintains its post BoE inflation report soft tone. The October FOMC minutes unveiled that policymakers discussed several issues at the meeting, including replacing the calendar language to data threshold in future guidance and implementing additional asset purchases after the expiration of Operation Twist in December.

However, no consensus was reached during the meeting and no action is expected in December. The minutes also stated that the FOMC staff revised up economic forecasts in the near- and medium-term but suggested that progress in reducing unemployment over the projection period was expected to be relatively slow.

Euro is supported as Fitch affirmed Ireland's BBB+ rating and upgraded the outlook to stable from negative. Moody's maintained the Ba1 rating for Ireland and said that it no longer see any risk of "Greek style" losses for Irish bond holders. Moody's also maintained negative outlook for UK's AAA rating and said it will review the rating in 2013.

Aussie is soft on news that RBA sold AUD 483m net in October through other outright transactions category. That's the highest amount sold since June 2009. Note that the so called "other outright foreign-exchange transactions" "aren't intended to affect the exchange rate" according to RBA. And it's believed that such off market transactions would take some pressure off the upside for the aussie.

Looking ahead, eurozone GDP and UK retail sales will be the main focus in European session. Meanwhile, US CPI, Empire State and Philly Fed survey will be released together with jobless claims in US.