Japan PM Abe's coalition govt victorious in upper house elections

Asian Market Update: Japan PM Abe's coalition govt victorious in upper house elections; USD/JPY sells off on profit taking

Economic Data

- (TW) TAIWAN JUN UNEMPLOYMENT RATE: 4.2% V 4.2%E

Markets Snapshot (as of 03:00 GMT)

- Nikkei225 flat

- S&P/ASX +0.6%

- Kospi +0.6%

- Shanghai Composite -0.4%

- Hang Seng -0.2%

- Sept S&P500 +0.1% at 1,691

- Aug gold +1.6% at $1,315

- Aug crude oil +0.4% at $108.45/brl

Observations/Insights/Currencies

- As expected, Japan's ruling coalition was victorious in the weekend upper house of Parliament elections, whereby the LDP reached 115 seat total in the 242-seat house. Combined with its coalition partner Komeito, the ruling coalition is set to hold 130 seats. Despite the positive vote, JPY rallied sharply with the start of Tokyo trade, as USD/JPY fell some 80 pips to as low as ¥99.60 while EUR/JPY fell over 100pips from the high below ¥131.20. Analysts attributed the counter-intuitive Yen strength to several factors - profit-taking on the news, very low election participation rate (51.57% vs 57.92% prior in 2010), absense of absolute majority, and concerns that the resounding victory will see the Abe govt turn less aggressive on economic reform.

- China banks opened lower in the wake of the PBoC removing the lending rate floor after the market close on Friday. Moody's noted expectation of diminishing profitability without a specific lending floor discount, even though other analysts the development is positive over the longer term as it serves to open up credit in the financial system. S&P said the acceleration in interest rate liberalization over the past year or so may be related to the rapid growth of off-balance-sheet and nonbank financing, suggesting the current PBoC tool box has little control over off-balance-sheet and nonbank financing markets.

- Down under, New Zealand dollar was initially weaker after a large 6.5 magnitude earthquake reported within 50mi of the capital. In Australia, financial press speculated the treasury is close to downgrading its GDP projections for 2013 and 2014, just as analysts turn more vocal on anticipating an RBA rate cut in August following the quarterly CPI data later this week.

Fixed Income/Commodities

- (KR) South Korea sells 20-yr govt bonds; avg yield 3.680%

- (AU) Australia Newcastle weekly coal exports for week ended July 22nd w/w: +17.8% v -3.9% prior

- GLD: SPDR Gold Trust ETF daily holdings fall by 2.7 tons to 932.5 ton (lowest since 894.7 tons in Feb of 2009) - update as of Jul 21st

Speakers/Political/In the Papers

- (JP) LDP, Komeito coalition win majority in the House of Councilors (upper house), as expected

- (JP) Parties for constitutional change not likely to secure necessary two-thirds majority following elections - Kyodo News

- (JP) Japan PM Abe: Upper house election results send a "powerful message telling me to proceed with my economic policies" - Japan press

- (JP) BoJ's Sato: BOJ does not rule out additional policy measures; will not hesitate fine-tuning policy flexibility if unexpected risks materialize - press conf

- (JP) Japan BoJ offers to purchase ¥200B in govt debt with maturities over 10-yr, ¥450B with maturities 5-10 years from the market

- (JP) Daiwa Securities economist: We will see increased buying by foreign investors with a medium- to long-term perspective - Nikkei News

- (CN) Moody's: China's removal of lending rate floor is Negative for banks

- (CN) China banks end-June net forex purchase position at CNY27.4T, -CNY41.2B m/m - financial press

- (CN) ANZ chief economist: China's SOEs to benefit from the PBOC decision on lending rate as they have more bargaining power over banks - Shanghai Daily

- (CN) China Bank of Communications (BoCom) Strategist: lending rate reform to boost economy

- (CN) China govt studies financial measures to support small companies - financial press

- (CN) China gov considering lifting 3-yr ban on capital raisings for property developers to accelerate construction of affordable housing - SCMP

- (CN) PBoC deputy gov Pan: current data underestimates aggregate actual financing situations - Chinese press

- (CN) PBoC Gov Zhou: China should take steps to develop the bond market - financial press

- (CN) Magnitude 6.0 quake reported approx 151km west of Tianshui (central China) - USGS

- (AU) Analysts with CommSec and AMP Capital expect RBA to cut rates again by 25bps in August - SMH

- (AU) According to a report from Minerals Council of Australia, govt regulation is constraining the competitiveness of mining projects - Australian press

- (AU) Australia Treasury may lower its 2013 and 2014 GDP targets from prior forecasts of 2.75% and 3.0%; May also raise its forecast for budget deficit higher - Australian press

- (NZ) Magnitude 6.5 earthquake hit New Zealand on Sunday about 35mi SSW from Wellington; Followed by minor aftershocks; Kiwi Income Property Trust: Not seeing any significant damage from the Sunday earthquake - financial press

- (KR) South Korea Jul 1-20 exports -0.2% y/y; Imports -7.6% y/y; trade balance at $893M - financial press

- (KR) South Korea plans to lower housing purchase tax - South Korean press

- (TW) Taiwan Central Bank to monitor capital flows to ensure currency stability - financial press

- (IN) India Fin Min Chidambaram: Does not expect a shift in RBI policy stance after the recent surprise rate move - financial press

- (US) PIMCO's Gross: Does not expect the Fed to start tightening policy until 2016 at the earliest - financial press

Equities

- Tokyo Electron 8035.JP: May report Q1 Op loss ¥9.0B v ¥9.2B y/y, Rev ¥110.0B -18% y/y - Nikkei News

- Panasonic 6752.JP: To discontinue issuance of overseas commercial paper - Japanese press

- 489.HK: Reports H1 vehicle sales +5% y/y to 1.71M units; Raises FY13 target to 3.5M vehicles from 3.32M units prior target

- MQA.AU: Reports Q2 toll Rev +4.2% y/y, Traffic +1.9% y/y financial press

- WOW.AU: Home improvement division announces loss in 1st yr of operations - AFR