The dramatic price action seen yesterday among several emerging market currencies is eased today, but here at month-end, demand for risk-assets is tentative at best. The macro backdrop, including the increase in US core inflation, expectations for continued hikes by the Federal Reserve, and unambiguous signals that trade tensions will increase in the coming weeks dampens the risk appetite.  

The dollar benefitted broadly from this yesterday, but not against the yen. The greenback had been bouncing up against a three-year weekly downtrend line near JPY111.60. The unwinding of structured positions and short-term momentum players drove the dollar marginally through JPY111.00. Yesterday’s 0.65% dollar decline was the largest in a little over a month, and there has been follow-through selling today, pushing the greenback to JPY110.70.  Additional support is seen near JPY110.50. There are several options expiring today. First, consider that there are $2.16 bln in options at JPY110.00-JPY110.25 and almost $700 mln at JPY110.50. Then the JPY1110.80-JPY110.85 houses another $1.19 bln in expiring option, with as much as $3.6 bln in options struck from JPY111.00 to JPY111.60.

Separately, Japan reported an unexpected rise in the July unemployment rate to 2.5% from 2.4% and an unanticipated decline in industrial output (-0.1% vs. Reuters survey expecting a 0.2% increase following a 1.8% decline in June and a 0.2% decline in May). Separately, Japan also reported disappointing June auto output and July construction orders. The government’s capex survey out early next week will shape expectations for revisions to Q2 GDP. 

After local markets closed, the BOJ announced some small tweaks to its September bond-buying plans. Essentially, it reduced the number of days it would make its purchases from six to five for 1-10 year bonds. However, it also increased the amount it could buy. Initially, it looked like some observers were putting more weight on the frequency than the increased range of potential purchases, and many concluded this was part of the “stealth tapering.”