BoJ Intervenes in Currency Markets to Weaken Yen; Drop in US ISM Data Suggests Disappointing Payrolls Figures on Friday

The Yen dropped sharply in Asian trading as markets received confirmation from the Japanese Finance Minister (Noda) that the Bank of Japan intervened in currency markets (selling Yen) for the second time this year. In addition to this, the BoJ ended its latest policy meeting saying that they plan to make monetary policy more accommodative by increasing domestic asset purchases.

The daily moves in the Yen were extreme but it remains to be seen if these activity will have any lasting effect on prices. The EUR/USD is trading lower at 1.4270-1.4370 on broad Dollar strength while the USD/JPY rose to 76.80-79.40. Macro data from the US included the ISM services figures, which came in lower than estimates on drops in the employment and new orders components.

This release does not suggest a positive outcome for the non farm payrolls data that will be released on tomorrow, which is likely to be a big market-mover. The S & P 500 closed slightly higher on the day (+0.5%) and the Nikkei 225 has edged into positive territory at +0.25% (helped by the BoJ intervention measures).

The next major event risk is the ECB policy announcement, with markets expecting no change to its base rate. Given this, most of the attention will focus on the accompanying statement, which is unlikely to reflect the same tightening bias that we have seen previously from the ECB. Growth data in the Eurozone has shown slowing momentum and inflation forecasts have dropped from the previous quarter.

General market uncertainty with and downward revisions to global growth forecasts are likely to be more of a concern for the ECB, so there is little reason to expect Trichet will do anything to surprise markets. Eurozone retail sales for the month of June did show some improvement, with a rise of +0.9% for the monthly figures (against expectations of 0.5%). Eurozone services PMI also rose to 51.6.

In New Zealand, the second quarter unemployment rate matched market expectations of 6.5%. The RBNZ is another central bank that has been expressing concerns over recent moves in exchange rates but he made no suggestion that intervention (which we have already seen twice this week, in Switzerland and Japan).

In the UK, construction PMI rose to 53.5, passing estimates and attention will now shift to the services PMI released today. The services sector makes up a much larger portion of the economy, so analysts will have more data to gauge growth and rate expectations after the release. spread betting companies