Asian Market Update: USD/JPY falls to a 6-week low as the Japanese currency gains support from election results, domestic manufacturing data and risk aversion

- Japan's opposition Democratic Party of Japan (DPJ) won the country's parliamentary elections this weekend, by winning a total of 308 seats out of 480. Following its victory, the DPJ may unveil its budget for the 2010/2011 fiscal year in early Oct.
The party is expected to abolish the prior government's budget ceiling, which is ¥53T ($563B), and this had led some analysts to speculate that a DPJ victory could be negative for Japanese government bond prices.

- In terms of economic data, Japan's manufacturing data continued to show improvements. The Aug Nomura Manufacturing PMI held above the 50 expansionary level for the second consecutive month and overall the index moved to its best level since November 2006. Additionally, Japan's July preliminary industrial production exceeded market expectations, as the m/m data rose for the 5th consecutive month (JAPAN JULY PRELIM INDUSTRIAL PRODUCTION M/M: 1.9% V 1.4%E; Y/Y: -22.9% V -23.1%E). Looking ahead, the Japanese government expects Aug manufacturing production to rise by 2.4% m/m and Sept production is seen up 3.2% m/m. In terms of Japanese data related to the consumer, Japanese July retail trade exceeded market expectations (JAPAN JULY RETAIL TRADE Y/Y: -2.5% V -3.5%E; M/M: 0.4% V -0.5%E). In Australia, Q2 company operating profits and inventories were both below expectations (AUSTRALIA Q2 COMPANY OPERATING PROFIT Q/Q: -7.8% V -4.5%E; INVENTORIES: -3.4% V -1.1%E). Additionally, Australia's HIA July new home sales rose (AUSTRALIA JULY HIA NEW HOME SALES M/M: 0.1% V 0.5% PRIOR ) on a monthly basis, while private sector credit data was in line with market expectations (AUSTRALIA JULY PRIVATE SECTOR CREDIT M/M: 0.2% V 0.2%E; Y/Y: 3.0% V 3.0%E). Other key Australian data releases for this week include Q2 GDP and the RBA's interest rate decision. In New Zealand, the NBNZ's Business Confidence survey rose to a more than 4 year high (NEW ZEALAND AUG NBNZ BUSINESS CONFIDENCE: 34.2 V 18.7 PRIOR). In other New Zealand news, RBNZ Gov Bollard was quoted as reiterating that the NZD exchange rate has not helped exports. Also, Bollard said the NZ economy is recovering and that he will be "clear cut" about policy in next week's monetary statement.

- In currencies, the Japanese yen is firmer across the board as the Japanese currency was bought following the local election results. Also, the yen is being supported by the equity declines in China and Japan's better than expected industrial production data. The yen is currently seeing its best gains against the commodity currencies (AUD, NZD and CAD) and the pound. According to a recent FT article, Deutsche Bank's head of fx strategy was quoted as saying that the yen could be supported by hopes that the DPJ implements reforms once it replaces the LDP. The USD is gaining against the European major and commodity currencies on the weakness in equities.

- Most Asian equities are lower on today's session, led by stocks in China. The Shanghai Composite closed the morning break lower by more than 5% as concerns regarding a potential lending slowdown persists. Additionally, stocks in China are being weighed down by share supply worries and corporate earnings. Today's equity losses in China are being led by basic materials companies and oil/gas firms. The Nikkei 225 has moved into negative territory after initially opening higher following the results of the weekend's elections and better than expected manufacturing data. The declines on the Nikkei are being led by basic materials and consumer goods companies. In Australia, the S&P ASX 200 is declining, led by telecom and basic materials companies. South Korea's Kospi is down by more than 0.75% led by declines in shares of health care companies and financials. Taiwan's Taiex is lower by more than 0.15% on declines in shares of financials and oil/gas companies. The Hang Seng is lower by more than 1%, tracking the declines in China.

- Crude oil prices are lower and trading below $72.50, after breaching $73/bbl earlier during the session. Crude oil is tracking the declines in equities and the commodity currencies. Spot Gold is lower on the session, after moving above $960/oz earlier during the session. (Note: All quotes are as of 00:40 EST)