The dollar settled into a familiar range with the European majors after a volatile NY trading session, but continued to fall with the other currencies against the yen. Helping the dollar and US equity markets higher on Thursday were three pieces of data that surprised on the upside. New home sales, durable goods and jobless claims were all better than consensus forecasts but it did not change the perception that economic momentum continues to fall and could remain weak into the end of 2002. But traders jumped at the news, driving the Dow and S&P each about 2% higher, near key technical resistance marks at 8,000 and 855. European bourses also got a late afternoon push higher on the news, with the CAC40 and FTSE rising 6% and 4% respectively. US equity futures are stable ahead of the London open and markets will be eager to see if the indexes can end on a positive note ahead of the weekend. A close in the Dow and S&P above the key 8,000-8,050 and 855-875 resistance areas are key for a more sustainable rally. But failure should lead to further declines targeting July's lows and be an impediment to dollar gains as the market remains concerned about the financing of the US current account deficit.
Eurozone data for later today consist of France August Unemployment and PPI, Italy September preliminary CPI and UK Q2 final release of GDP and Current Account. US economic data will see Q2 GDP and the University of Michigan's consumer sentiment survey. While the dollar continues to hover in a familiar range against the European majors, the yen broke trendline resistance against both EUR and USD making that yesterday's trade of the day. EUR/JPY and USD/JPY support at 122.50 and 120.05 gave way to a quick selloff to session lows of 121.85 and 118.95.
This was also the yen's fourth consecutive rise from Monday' lows of 121.95 and 124.20 against the euro and dollar. While a correction from this oversold condition was anticipated, much attention has been given to the factors pushing the currency as heightened speculation of much needed reform in Japan gets underway again. Yesterday's ascent was triggered by a report in the Nihon Keizai Shimbum stating that the FSA plans to change the pricing at which bad loans are purchased by the Resolution and Collection Corp (RCC). The FSA intends to increase the amount in which the RCC pays for the bad loans, pricing them at book value, rather than at market value, thereby helping reduce the banks' losses. Chief Cabinet Secretary Fukuda stated on Thursday that the government is cautiously studying public funds injection for banks to avert a potential financial crisis. Fukuda said the FSA is working on steps needed in line with PM Koizumi's vow that the government will accelerate the banks' disposal of bad loans. In addition, Fukuda said the government will likely come up with measures by the end of next month.
But throwing cold water on this rumor was Japan FSA Minister Yanagisawa who continues to say there is no need to inject public funds into banks now. He also says the reported plan by RCC to buy banks' debts at higher prices are groundless, as it his contention that there is not a banking crisis in the making. This directly contradicts the BoJ's stunning move last week to purchase shares off bank's bad balance sheets as the central bank fears the worst.
The markets are trying to decipher whether this latest push towards reform will come to fruition, or rather just result in an even larger band-aid on Japan's ailing economy. This weekend's G-7 meeting may be able to shed some light on that question as BoJ Governor Hayami and FinMin Shiokawa are expected to discuss the BoJ's stock purchasing plan among other new reform initiatives with finance ministers and central bank governors in Washington. The meeting between the two will take place at 2:00 PM EST, meanwhile the G7 meeting will take place at 3:00 PM EST
According to Kyodo News, FinMin Shiokawa and EcoMin Takenaka are to keep their posts in cabinet reshuffle. //www.forexnews.com