October 26th, 2010 01:32:58 GMT

USD/JPY orders: Large optionality at 80.00

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A break below 80.00 would see many big option books having to revise their hedging strategies and therefore there are large stop-loss orders just below 80.00.

There is also talk of some large barrier options at the same level which will be aggressively protected.

As I mentioned earlier, interbank players were buying overnight close to the 80.40 low suggesting that there are more significant buy orders close to that level.

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October 26th, 2010 00:35:45 GMT

Japan Sep Corp Service Prices -1.1% Y/Y, 24th Drop In Row

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– Japan Sep Core CSPI (Ex Intl Transport) -1.2% Y/Y; Aug -1.1%
– Japan Sep Total CSPI -0.1% M/M Vs Aug -0.4%
– Japan Sep Core CSPI -0.1% M/M Vs Aug -0.3%

TOKYO (MNI) – Japan’s corporate service price index fell 1.1% in
September from a year earlier, the 24th consecutive year-on-year drop,
with the pace of decline being unchanged for three months, Bank of Japan
data released on Tuesday showed.

The total CSPI, which stood at a record low of 96.7 in September
against 100 in the 2005 base year, was down 0.1% from the previous month
after falling 0.4% in August. It was the third consecutive m/m drop.

The pace of year-on-year drop was unchanged in September vs. August
as the upward contributions from transportation (+0.09 point) and
leasing and rental (+0.06 pt) were offset by the downward contributions
from advertising services (-0.06 pt) and other services (-0.03 pt).

Economists expect the year-on-year decline in CSPI to moderate in
the coming months as downward pressure on CSPI will be eased by firm
international commodity prices, which push up transportation costs.

The downward pressure on prices has eased generally since the total
CSPI hit a record drop of -3.8% in August 2009, which was the largest
decline since the BOJ began compiling CSPI data in January 1985.

Core CSPI excluding international transportation, a fairly new
measure free of volatile factors, dropped 1.2% year-on-year in September
after falling by 1.1% in August.

Month-on-month, the core CSPI was down 0.1% in September after
falling 0.3% in August. It was the third consecutive m/m drop.

The index for transportation, which accounts for about 21% of the
index weighting and thus has a large impact on the headline index, was
up 0.3% year-on-year in September after falling 0.1% in August.

Within this category, ship chartering fees fell 3.2% year-on-year
(vs. -7.7% in the previous month), while ocean freight transportation
costs rose 1.0% (vs. a revised -2.6% the previous month).

The index for advertising services (weighting: 6.85%), which
includes TV commercials, fell 2.2% on the year, following a revised 1.3%
fall in August.

The index for information and communications, including software
development and mobile phone charges (weighting: 21.65%) dropped 0.7% on
the year, after falling 0.6% in the previous month.

The index for finance and insurance (weighting: 5.91%) slipped 1.1%
on the year after falling a revised 1.2% in the previous month.

The corporate services price index tracks prices for a wide range
of corporate services, ranging from finance and insurance charges to the
cost of shipping goods by road rail, air or sea.

It also includes software development costs, telecommunications
charges and legal and accounting fees.

In 2009, the BOJ changed the base year for its corporate service
price index to 2005 from 2000, which takes place every five years, while
reshuffling the services covered in the data to reflect more high-tech
and diversified business activity, effective September 2009 data.

Under the 2005 base year, the total CSPI hit a recent peak of 102.0
in July 2008, when demand from China to import iron ore and coal ahead
of the Beijing Olympics peaked, pushing up global ship chartering and
freight charges.

By contrast, the core CSPI was largely leveling off in several
months through July 2008, when it was only at 99.6.

The change is designed to boost the accuracy of the indicator
following technology innovation. Both the government and the BOJ
routinely change the base year for the price data they compile to
mitigate the upward bias typically found the further the data is from
the base year.

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

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

1 Comment

October 26th, 2010 00:16:09 GMT

Fed’s Dudley:If Fed Can Lower Int Rates And Help Econ It Should

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By Steven K. Beckner

ITHACA, NY (MNI) – With a major meeting of the Federal Reserve’s
policymaking Federal Open Market Committee just over a week away, the
second most powerful man at the central bank strongly suggested Monday
evening that the Fed should pump more money into the economy.

Federal Reserve Bank presidents may differ on monetary policy, but
William Dudley, head of the New York Fed and vice chairman of the FOMC
left no doubt what he thinks the FOMC should do next Wednesday.

With the economy growing too slowly to reduce unemployment
significantly and with inflation low and falling, Dudley didn’t prejudge
the outcome of the meeting but indicated that, as far as he is
concerned, that there is a powerful case for additional “quantitative
easing.”

Talking to reporters following a speech at Cornell University,
Dudley pointed to a figure of $500 billion of bond purchases he had used
in an Oct. 1 speech, and he said his views have not changed much sense
then.

Dudley said he and his colleagues must weigh the “costs and
benefits” of so-called “QE2,” but said that if the Fed can lower rates
further and help the economy — and he believes it can — then it should
do so.

He made clear that potential QE2 effects on the value of the dollar
would not weigh heavily in his decision-making.

Dudley said that recent bond yield movements in anticipation of QE2
show that bond purchases can lower long-term interest rates and be
“supportive of financial conditions.”

He was then asked by an audience member whether lower rates would
actually help the economy.

“It’s fair to say I don’t think anybody at the Fed thinks that
balance sheet expansion is a panacea,” he replied, adding that “a lot of
things need to be done on the fiscal front and reducing policy
uncertainty … . It’s not just about monetary policy.”

“But we have a very clear mandate” to pursue full employment and
price stability,” Dudley said, and the statue “doesn’t say don’t use it
unless it’s perfect.”

“If there are tools that help move in that direction … without
unacceptably high costs … (the Fed’s statutory mandate) suggests we
should try to move in that direction,” Dudley continued.

Dudley said he believes QE “will ease financial conditions” and
“will support economic activity.”

He said more economic activity means “more job creation,” which in
turn will lead to “more consumer spending,” “more consumer confidence”
and so forth.

“I think that to the extent we can do things that improve the
economic environment, we owe it to all those unemployed people to do
so.”

He acknowledged there are “pros and cons” to resuming QE. One is
that expanding the Fed’s balance sheet further would “complicate the
Fed’s exit” from what he called an already “highly accommodative
monetary policy.” Another is that it would “introduce some interest rate
risk into (the Fed’s) portfolio.”

Talking to a few reporters, Dudley was asked what QE strategy he
will favor at the FOMC meeting.

“I’m going to be working on that this weekend (to determine) what I
argue for and why,” he replied with a chuckle, but more seriously added
that his Oct. 1 speech is “pretty reflective of my views today.”

As for market expectations of large amount of bond purchases,
Dudley said he “would put very little weight on what is or is not
priced into the market.” He said the FOMC must figure out what is best
way to proceed to fulfill its dual mandate and said that will entail a
“very careful assessment of costs and benefits.”

But based on conversations with market participants, Dudley said,
“our judgment is the market views a pretty high likelihood of
quantitative easing.”

Asked whether QE should be done in large amounts or incrementally,
Dudley said, “A lot of it depends on the circumstances. So, to say one
is better than the other, I think, is a little bit of false choice.”

“I mean, if you thought monetary policy was way behind, or let’s
say the economic outlook took a dramatic turn for the worse, then you
might want to do a large amount of anything,” he explained.

“And that wouldn’t really say anything about what you would do if
you were in circumstances where you thought monetary policy was close to
appropriate and you want to make a very small tweak in monetary policy.
So first of all, I think it really depends on the context.”

Market News International asked whether he favors announcing a
certain amount of QE up- front or whether the purchases amounts should
be left open-ended and decided from meeting to meeting.

“I think the most important thing is to communicate clearly to the
market what you’re doing, why you’re doing it and how it’s likely to
evolve going forward,” he replied. “I think one of the challenges that
we face should we go down this path is to help the market participants
think along with us.”

“As the policy evolves, the better we can help market people think
along with us, the more accurate market participants will adjust
financial conditions in a way that is consistent with what we’re trying
to achieve,” he continued.

“So the transmission mechanism of monetary policy to the real
economy will be more accurate in that circumstance. so i think
communications is really important.”

MNI also asked Dudley to what extent he thinks the impact of QE2 on
the dollar and currency markets should be considered by the FOMC.

“We view the dollar as the province of Treasury,” he replied,
adding that the Fed sets monetary policy “consistent with price
stability and full employment.”

“The dollar may go up or down,” he said, but “the dollar is not the
goal of policy.”

Earlier, in response to an audience question, Dudley said, “If we
do what we need to do in terms of achieving our dual mandate … the
dollar will take care of itself … . I don’t spend a lot of time
focusing on the dollar.”

Dudley made more clear he is concerned about disinflation, if not
outright deflation, which he called “dangerous.”

He told the audience that “downward pressure on inflation … has
continued on and on,” leaving inflation “below what we consider
consistent with price stability.”

“That makes us pretty uncomfortable,” he said, because it “makes
the economy vulnerable to a shock.”

Among the FOMC’s options are to adopt an inflation target or a
price level target. But he said the FOMC already has an implicit
inflation target in the form of its 1.7% to 2.0% long-run inflation
forecast. And he said a price level target would be “complicated” to
explain to the public.

Another option is to make some “more powerful” way for the FOMC to
communicate its intention to keep rates near zero for an “extended
period.”

Seeking to dampen concerns about the size of the balance sheet and
the possibility that it will expand even further, Dudley said, “Make no
mistake. We can manage our balance sheet fine … . It’s not going to
cause inflation.”

He said the Fed will begin shrinking its balance sheet, either by
letting maturing securities run off or through asset sales, as soon as
it becomes confident that it can achieve its dual mandate.

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

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

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October 25th, 2010 23:40:33 GMT

FinMin Noda on the newswires early

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You don’t need to be psychic to know what he’s saying; yesterday’s moves were one-sided, excessive moves hurt stability, and he continues to watch the FX market with great interest.

Interbank prop traders were seen buying USD/JPY yesterday near the 80.40 lows which suggests that they know of some decent sized buying interest at that level. I still prefer selling rallies though.

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