FOREX ASIA UPDATE - USD

The US dollar slipped on a report in the Nikkei newspaper today that the BoJ is planning to tighten its monitoring of carry trades, deeming it as the cause for misaligning the yen further from its fair value.

This shook the market at the tail end of New York trade, taking USDJPY down from 119.01 to 118.38 low. Before the Nikkei's publication, the USD was buoyed somewhat by a mixed data with a stronger than expected rise in the core finished PPI and slightly higher housing market index but a weaker than expected readings for the overall finished goods PPI.

Treasury yields fell on the weaker-than-expected overall PPI but reversed most of the declines after the HMI numbers were released. The reduction in expectations for Fed easing over the past two weeks was an important element in the USD's rally, and price action this week suggests that this source of support could be ebbing.

Also of note, NYMEX crude prices have extended their recovery back above $60 amid talk of OPEC production cuts later this week.

Equities in Asia have responded negatively yesterday and the S&P was off 0.4% overnight. A setback for stocks could curtail the equity inflows that have also boosted the USD so far in October.

Despite the Nikkei report today, we think the market may prefer to wait for the minutes for the September BoJ meeting, which are due for release today, before we could see a more sustained selling of the USD. Otherwise, we remain concerned that any weak US data may still rattle the current perfect soft-landing scenario that is underpinning the USD going forward.

Today, we have September CPI figures and also due today is the housing starts numbers. We also have Crude Oil Inventories, so a Big day for the Economic Datas, which should move Energy Markets, Stock Markets, Dollar (Heavily) And Precious Metals in return (WATCH CRUDE OIL FOR PRICE INDICATION).