Overview: After sliding hard this month, equities continue to stabilize into month-end. All of the equity markets in Asia-Pacific rallied with the help of a solid close in the US. European bourses are higher too as the Dow Jones Stoxx 600 tries to extend the recovery for a third consecutive session, led by energy, materials, and information technology. US equities are trading firmly, and the S&P 500 may snap one of the longest streaks since the Great Depression without back-to-back gains. Recovering equity markets are sapping the safe-haven bid for bonds, and 10-year benchmark yields are mostly a couple of basis points higher, though Italy is showing greater resilience and the 10-year BTP yield is off five-six basis points. Against the majors and emerging market currencies, the dollar is mostly firmer.  

Asia-Pacific

As widely expected, the BOJ did not change monetary policy, and the two newest board members Harada and Kataoka dissented. However, rather than do more as they argued, the BOJ downgraded its inflation outlook. Meanwhile, the BOJ continues to tweak its bond-buying operation to be the least disruptive. It will enter the market to buy one-to-five year bonds while increasing the amount it could purchase. The BOJ widened the band for the 10-year JGB yield back in July and provided global yields continue to trend higher, allowing a further rise in Japanese long-term rates and a steeper curve seems likely in the coming months. Separately, the steeper than expected slide in Japanese industrial output in September (-1.1%) was distorted by the natural disasters and will a recovery in Q4 is likely.  

The dollar managed to marginally extend yesterday’s gains against the yen before stalling in front of a retracement objective near JPY113.35. An $800 mln JPY113.30 option expires today as does a $735 mln option at JPY113.10.  Firm yields and equities in the US could see the market push the dollar higher provided immediate support near JPY112.80 holds.