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Japan will act decisively on Forex when needed.

TOKYO (MNI) – Japan’s average household spending rose a real 1.7%
in August from a year earlier to Y293,361, as warm weather boosted sales
of air-conditioners and refrigerators as well as beverages while some
consumers rushed to car dealerships before the end of government
subsidies for low-emission vehicles in September, data from the Ministry
of Internal Affairs and Communications showed Friday.

It was the third consecutive year-on-year rise in household
spending in inflation adjusted terms.

The August figure came in slightly higher than the consensus call
for +1.3%. In nominal terms, spending rose only 0.8% y/y.

The August gain followed a 1.1% rise in July, a 0.5% rise in June
and declines of 0.7% in both May and April, and a 4.4% jump in March
(when there were rush purchases of consumer electronics), the latter
being the largest y/y gain since +5.0% in May 2004.

The May 2009 rise (+0.3%) was the first y/y gain in real terms in
16 months.

Real spending rose in six out of the 10 categories in August: home
maintenance and repairs (+17.4%), transportation and communication led
by automobiles (+8.6%), education (+5.7%), furniture and household
utensils including refrigerators and air conditioners (+2.1%), utility
charges (+1.5%) and other consumption expenditures (+0.1).

These gains more than partly offset lower spending on medical care
(-13.0%), clothing and footwear (-1.0%), culture and recreation (-0.7%),
and food (-0.5%).

The government ended its subsidy program for buying
energy-efficient vehicles in mid-September but will continue to waive
taxes or apply lower tax rates for buying and owning low-emission cars
and trucks.

The government’s reward program for buying greener consumer
electronics has continued to support demand for certain models of
flat-screen TVs, refrigerators and air conditioners/heaters.

The average real income of salaried workers’ households rose 1.8%
in August to Y470,717, posting the first y/y rise in two months
following a 1.0% drop in July. It rose a nominal 0.9% in August.

Real disposable income in the average salaried workers’ household
rose 0.6% in August to Y388,478, marking the first y/y rise in two
months. It fell 0.3% in nominal terms in August.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]

The reading last month was 51.7 .

The AUD/USD has popped through short-term resistance at .9675/80. Next resistance is the important .9725 level from overnight.

Mr Geithner believes that there is little chance of escalating trade tensions with China over the Yuan.

This would seem to back up the theory that the China FX bill is purely political showboating ahead of upcoming elections and will never actually be passed into law.

This is mildly AUD positive.

On another note, China is on holidays today and all of next week.

– Japan Aug SA Jobs -10,000 M/M (0.0%) Vs July +210,000
– Japan Aug SA Unemployed -70,000 M/M (-2.1%) Vs July -60,000
– Japan Aug NSA Jobs -180,000 Y/Y, 1st Drop In 2 Mo; July +10,000
– Japan Aug NSA Unemployed -240,000 Y/Y; 3rd Drop In Row; July -280,000
– Japan Aug Job Offers-To-Seekers Ratio 0.54 Vs July 0.53

TOKYO (MNI) – Japan’s unemployment rate fell to a four-month low of
5.1% in August from 5.2% in July, as the number of unemployed showed the
second straight monthly drop, data from the Ministry of Internal Affairs
and Communications showed Friday.

A gradual improvement in the labor market was also confirmed in
year-on-year changes but the number of employed people fell 180,000 from
August last year, posting the first y/y drop in two months after marking
the first y/y rise in 30 months in July (+10,000).

The seasonally adjusted unemployment rate for August matched
analysts’ median forecast as well as April’s rate, drifting down from
the recent high of 5.3% in June.

The August jobless rate was below the record high of 5.6% hit in
July 2009, but still well above the 4.2% rate seen at the start of 2009.

In August, the number of unemployed fell by a seasonally adjusted
70,000 from the previous month, or 2.1%, to 3.34 million, compared with
a drop of 60,000 in July.

It was the second consecutive m/m drop.

The number of payroll jobs was little changed, down by a seasonally
adjusted 10,000 month-on-month, or 0.0%, at 62.45 million, showing the
first m/m drop in three months, after rising 210,000 m/m in July.

On an unadjusted basis, the number of employed people fell by
180,000 to 62.78 million in August, marking the first year-on-year drop
in two months. Employment rose 10,000 in July, the first year-on-year
gain in 30 months.

The unadjusted number of jobless workers was down by 240,000 in
August from a year earlier at 3.37 million, marking the third
consecutive year-on-year decline, after falling 280,000 in July.

Job losses remained largely in agriculture and forestry,
construction, manufacturing, wholesale and retail trade as well as
personal and amusement services.

Meanwhile, the medical, health care and welfare, education,
learning support as well as hotels and restaurant sectors continued to
create jobs.

The Japanese economy has moved out of the sharp contraction seen
early last year, but the jobless rate is a lagging indicator that
typically follows economic movements after a delay of several months.

The Bank of Japan has said that the employment and income situation
remains severe but that the degree of severity has eased somewhat.

The BOJ’s September Tankan survey showed that sentiment among
Japan’s major manufacturers improved for the sixth straight quarter but
also indicated that business managers are turning more cautious in their
outlook for the coming months due to the yen’s rise and increased
uncertainty over the global economy.

The BOJ has said that the pace of Japan’s economic recovery is
likely to slow temporarily.

Other details of the report follow:

The number of workers who retired or whose contracts expired:
August -60,000 y/y at 340,000 vs. July -50,000.

The number of those who lost their jobs and were looking for work:
August -190,000 y/y at 1.05 million vs. July -190,000.

The number of people who quit their job voluntarily to look for
other openings: August -10,000 y/y at 1.10 million vs. July -30,000.

Separately, the Ministry of Health, Labor and Welfare said that the
ratio of job offers to job seekers at government placement offices stood
at a seasonally adjusted 0.54 in August, up from 0.53 in July. That
means there were only 54 job offers for every 100 people looking for
work.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]

– Important Not To Remove Fiscal Stimulus Too Soon

By Sheila Mullan

NEW YORK (MNI) – Noting that inflation is below the Federal
Reserve’s target, Cleveland Federal Reserve Bank President Sandra
Pianalto said Thursday she is focused on bringing inflation back to 2%.

In a question and answer session at the Women’s Economic Round
Table in New York, Pianalto also said that while it is important not to
remove fiscal stimulus too soon, Congress needs to start to plan for the
longer-term deficit reduction.

Asked about the tradeoff between the Fed’s policymaking Federal
Open Market Committee’s growth and price stability mandates, Pianalto,
a voting member, said, “my focus is on bringing inflation back to 2%.
That is what I will focus on.”

Earlier in her prepared remarks, Pianalto said, “I also expect
underlying inflation to remain near its current low level through next
year, lower than the roughly 2% rate that I see as consistent, over the
long run, with the Federal Reserve’s objectives.”

Turning to fiscal policy, Pianalto warned against a premature
removal of fiscal stimulus as the economy remains weak. However, she
stressed the need to differentiate the short term from the long term.

“When the country is going through a recession, you need to have
that fiscal stimulus,” she said.

But while it is important not to remove the stimulus too quickly,
it is also important that Congress starts to plan for the future.

A plan to reduce large deficits “will go a long way to deal with”
the situation, said Pianalto.

Turning to monetary policy, Pianalto repeated that should
additional accommodation be needed, the Fed does have options, although
monetary policy is currently already “very accommodative.”

With the fed funds rate “essentially” at 0%, she added, the Fed
must turn to “unconventional policy tools” such as lowering the interest
rates on excess reserves, or “do further buying of long-term assets.”

Earlier in her speech, Pianalto said the Fed needs to weigh the
costs and benefits of further action and make sure it can be effective.

** Market News International New York Newsroom: 212-669-6430 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,MT$$$$]

– Central Tokyo Sep Core CPI -1.0% Y/Y Vs Aug -1.1%, 17th Drop In Row
– Central Tokyo Core CPI Drop Smallest Since -0.7% in May 2009
– Japan CPI Remains Depressed By Lower Prices for Tuition, Electronics
– Japan CPI Shows Aug Energy Costs +4.3% Y/Y Vs July +3.7%

TOKYO (MNI) – Japan’s core consumer prices fell 1.0% in August from
a year earlier, the 18th straight y/y drop, as retail discounts and
subsidies for high school education continued to offset higher energy
costs, the Ministry of Internal Affairs and Communications said Friday.

The pace of decline in the core CPI — excluding fresh food but
including energy — decelerated slightly from -1.1% in July and matched
June’s -1.0% because the year-on-year rise in energy prices expanded to
+4.3% in August from +3.7% in July, raising the sector’s positive
contribution to the CPI.

The August result matched analysts’ median forecast.

Continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — contributed to
the price drop, overwhelming a year-over-year rise in gasoline and
heating oil costs.

Core CPI has shown widespread declines in prices of goods and
services as retailers cut prices to lure customers and technological
advancement makes higher quality products available at the same or lower
prices.

High school tuition costs fell 17.4% in August from a year before,
contributing -0.49 percentage point to the total CPI year-on-year drop
of -0.9% (vs. -0.9% in July), exerting the same rate of downward
pressure as in the previous months.

Utility charges showed a year-on-year rise in August, pushed up by
the first y/y rise in electricity charges in 16 months and a further
gain in city gas bills. This led to a higher 4.3% rise in overall energy
costs in August, up from a 3.7% gain in July.

Electricity costs were up 1.3% y/y in August vs. -0.3% in July,
while city gas was up 2.8% vs. +0.6% the previous month.

The pace of the year-on-year rise in prices of refined petroleum
products continued to decelerate to +7.0% August from +7.8% in July and
+12.3% in June.

The y/y rise in gasoline prices was slower at +6.4% in August,
compared with +7.4% in July, while the pace of increase in heating oil
also decelerated to +17.4% in August from +18.2% in the previous month.

The rate of core CPI price drops had slowed to -1.3% by December
last year from the record -2.4% pace in August 2009 but deflation did
not ease much through April 2010, when the core reading actually slumped
to -1.5%, as the government began providing subsidies for high school
tuition as part of its economic stimulus measures.

The Bank of Japan has said high school tuition cuts, whose effect
on CPI will last for 12 months from April, should be excluded when
gauging the consumer price trend.

The BOJ has also said that the year-on-year rate of decline in the
core CPI is expected to slow as the negative output gap — overcapacity
vs. slack demand — continues shrinking gradually. The bank’s board
expects the core CPI to rise 0.1% in fiscal 2011 after two years of
declines.

The government expects the CPI to start rising on a year-on-year
basis in fiscal 2011 and seeks to achieve an average 1% rise in prices
through fiscal 2020. Unlike some other countries, Japan’s government and
central bank do not set a common inflation target.

On a month-over-month basis, the core national CPI rose 0.1% in
August, the first m/m gain in three months after falling 0.3% in July,
as higher overseas holiday tour costs offset continued markdowns in
summer clothing.

Meanwhile, core central Tokyo CPI fell 1.0% year-on-year in
September, the 17th straight y/y drop, but the rate of decrease
decelerated from -1.1% in August, as utility charges continued to gain,
mitigating the impact of a much slower pace of y/y increase in gasoline
prices.

The 1.0% drop in August was the smallest y/y decrease since -0.7%
marked in May 2009.

In the central Tokyo area, the pace of price drops has fluctuated
since the record drop of 2.2% hit in October 2009 but the year-over-year
decline now seems to be shrinking.

Sharp drops in high school tuition continued to lead the decrease
in September, while sharper drops in air fares also exerted downward
pressure. But a jump in utility costs provided a positive contribution
to the core reading.

Tokyo-area gasoline and heating oil prices continued to rise from
year-earlier levels, although gasoline prices showed only a 0.7% gain
y/y in September vs. +4.0% in August.

The overall energy cost in the area rose 4.8% y/y in September, up
from +3.8% in August, due to higher utility charges.

Month-on-month, core central Tokyo CPI rose 0.1% in September after
rising 0.2% in August, posting the second straight m/m rise.

CPI figures date to 1970 under the current 2005 base year.

Other details from the latest data:

National CPI excluding food and energy, or the U.S. style core CPI
(y/y): August -1.5% vs. July -1.5%, the 20th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): September -1.3% vs.
August -1.4%, in negative territory for the 21st straight month.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]

EUR/USD is again leading the advance this morning after closing in NY around 1.3620. It has rallied in early trade as dealers prefer to sit on long intraday positions given expected Sovereign buying interest and talk of massive option-related stops above 1.3700.

The AUD/USD fell in early trade from its NY close at .9670 to a low at .9635 but has bounced straight back to the same level as USD pessimism outweighs worries about the overbought nature of the AUD market.

• USD/JPY: Hedge funds reportedly buying steadily above 83.00; BOJ still expected to draw a line in the sand around the same level; heavy stops below 82.80
• EUR/USD: Sovereign bids expected around 1.3550; option protection ahead of 1.3700; heavy stops above 1.3705
• AUD/USD: Heavy selling reported .9725/50; very large stops above .9750; trailing trader stops below .9600
• USD/CHF: Heavy stops above .9880

The Kospi is flat on the open.

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