Yen Tumbles As Nikkei Lifted By Talk Of Corporate Tax Cut

Yen weakens broadly today as Nikkei rises over 200pts on news that prime minister Abe is considering a corporate tax cut to offset the impact of the planned sales tax hike. The news came after Japanese GDP report released yesterday which showed weaker than expected growth of 0.6% qoq in Q2. The data prompted speculation that Abe could delay or even reconsider the two staged increase in sales tax. But it seems that Abe considering another way to ease the burden on the economy. Recovery in US treasury yields also put some pressure on the Japanese yen. USD/JPY is approaching minor resistance of 97.58 on the recovery while EUR/JPY is close to 129.70 minor resistance. These levels will be closely watched today on the chance of near term reversal. Data from Japan saw machine orders dropped less than expected by -2.7% mom in June.

Aussie weakens mildly today as NAB business confidence dropped to -3 in July. NAB chief economist noted that sentiments remained "extremely poor" in mining industry in spite of recent depreciation in the currency and RBA rate cut. The final budget update before election confirmed a deficit of AUD 30.1b in 2013/14 fiscal year. The so called Pre-election Economic and Fiscal Outlook noted that "against the backdrop of a still-challenging global outlook, the Australian economy is expected to transition away from resource investment-led growth towards broader-based growth". But it warned that the transition "may not occur as smoothly as forecast".

EUR/GBP continues to struggle in tight range above an important near term support at 0.8581 ahead of some important economic data today. The UK RICS house price balance improved more than expected to 36 in July but provided little inspiration. UK will release inflation data today. CPI is expected to drop back to 2.8% yoy in July while RPI is also expected to drop to 3.2% yoy. PPI input, output and output core are expected to rise slightly. German ZEW is expected to improve to 39.9 in August while Eurozone ZEW is expected to improve to 37.4. We might finally see EUR/GBP takes a direction after today's data.

Meanwhile, EUR/USD's rejection from 1.34 level yesterday triggered broad based recovery in the greenback. Focus will turn to today's data from US. Retail sales is expected to grow 0.3% in July while ex-auto sales is expected to rise 0.4%. Import price and business inventories will also be featured.