2010.08.3100:21:00UTC+00Yen Strengthens To Multi-day Highs Against Most Majors

Tuesday morning in Asia, the yen soared to multi-day highs against most major currencies as traders shrugged off the latest policy decisions from the Bank of Japan, which were perceived as too timid to stem the rapid rise of the yen.

The Bank of Japan announced an expansion to its low-interest lending program after an extraordinary policy board meeting on Monday.

The BoJ policy board decided to introduce a new JPY 10 trillion six-month fund supplying measure in addition to the JPY 20 trillion three-month loan measure it already has in place. BoJ Governor Masaaki Shirakawa has pledged to take appropriate actions to support the economy.

In addition, the Japanese government announced that it will allocate JPY 920 billion or $11 billion in reserves in the fiscal 2010 budget to stimulate the economy.

Most Asian stocks plunged today following a negative lead from Wall Street, where stocks declined sharply overnight amid doubts about the sustainability of economic recovery.

Thus far, Japan's Nikkei 225 index fell 2.6%, Hong Kong's Hang Seng slipped 0.8%, China's Shangai composite index dropped 0.8%, New Zealand's NZX 50 index lost 0.2%, South Korea's Kospi declined 1.1% and Taiwan's main index plunged 1.7%. Meanwhile, Australia's S&P 200 index and the All Ordinaries index fell 0.5% each.

Market reaction was limited to Japanese government data released earlier in the session.

Japan's Ministry of Finance reported that its preliminary read on industrial production showed an increase of 0.3% in July, the first increase in three months. For the full year to July, industrial production was up 14.8%.

A separate report showed that retail sales in Japan increased in July by 0.7 percent compared to June. For the full year to July 2010, retail sales increased 3.9 percent. Most economists forecast an on-month increase of 2.4 percent and an on-year increase of 3.5 percent.

The yen strengthened against the US dollar in early Asian deals on Tuesday and reached a 4-day high at 10:20 pm ET. This may be compared to Monday's close of 84.63. If the yen gains further, it may likely target last week's 15-year high of 83.6. As of now, the dollar-yen pair is worth 84.41.

During early Asian deals on Tuesday, the yen edged up against the currencies of U.K. and Europe. At 10:15 pm ET, the yen hit a 6-day high of 106.64 against the euro and 130.35 against the pound, compared to yesterday's close of 107.16 and 130.85, respectively. The next upside target level for the yen is seen at 105.4 against the euro and 128.8 against the pound. At present, the yen is worth 106.79 against the euro and 130.50 against the pound.

The yen jumped to a 4-day high of 59.24 against the New Zealand dollar, 79.48 against the Canadian dollar and 75.30 against the Australian dollar. If the yen rises further, it may target 58.5 against the kiwi, 78.9 against the loonie and 73.8 against the aussie. The yen closed yesterday's trading at 59.87 against the kiwi, 79.86 against the loonie and 75.52 against the aussie.

Several economic reports from Australia, which were released in the session likely influenced the aussie.

Looking ahead, Japan's housing starts for July and small business confidence for August are expected at 1:00 am ET.

Swiss UBS consumption indicator for July, German unemployment rate for August, Italian retail sales for June, business confidence for August, CPI for August and unemployment rate for July and the Euro-zone CPI for August and jobless rate for July are slated for release in the European session.

Canada's second quarter GDP, U.S. S&P/Case-Shiller home price index for the second quarter, consumer confidence and the Chicago PMI for August are expected in the New York morning.

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