Asian Market Update: BOJ anticipated to raise assessment of economy, confirm signs of growth; Moody's affirms South Korea, downgrades Hong Kong Mortgage Corp

- Asian equity markets are tracking gains in the US, where risk appetite reemerged after Fed Chairman Bernanke suggested the US recession is "very likely over" just as US retail sales posted a better than expected result. Consumer goods, energy, and basic materials sectors are leading the gainers in the regional bourses with the Kospi and S&P/ASX rising over 2%. Nikkei225, constrained by stronger yen, is slightly behind but still up over 1%, with Shanghai Composite the only major regional decliner, falling nearly 2% going into midday break on weakness in financials. Ahead of the Wednesday open, front-month S&Ps are marginally higher at 1,046.

- Economic calendar was extremely light on the session, limited to South Korea Aug jobless rate at 3.8% and 2nd tier Australia Westpac leading index at 1.1% - both generally in line with prior month's results. More notably, Bank of Japan has started its two-day policy meeting just as Japanese press forecasted the central bank would take a more positive tone on the economy. Specifically, this month's meeting is expected to confirm signs of improvement in the industrial and exports sector, even though some BOJ members may still remain cautious because of deteriorating employment conditions and strengthening currency. Moreover, press sources consider whether policy makers would offer a new timeframe for its quantitative easing program, expected to expire at the end of December. Separately in Japan, incoming administration had reportedly confirmed widely expected nominee Hirohisa Fujii as the next finance minister.

- Elsewhere in Asia, Moody's offered a pair of mixed reports for South Korea and Hong Kong. The credit agency affirmed economic stability and a pick up in activity amid stable inflation for the former, noting that South Korea can easily reach the projected 3% 2010 GDP target. Moody's outlook for Hong Kong was centered around the real estate sector, as it cut the Hong Kong Mortgage Corp sr unsecured foreign and domestic ratings by 2 notches to Aa2 from AAA, questioning the govt's ability to provide financial support to banks and other financial firms amid a prolonged global financial crisis. In the latest developments over the US-China trade stand-off, US press sources suggest that Chinese official inquiry into US poulty imports may be an empty threat, citing importers suggesting that local demand for US poultry products is likely to remain high.

- In notable equities, Telstra remained in the spotlight in Sydney trading, recouping some of its prior session declines after the government was rumored to offer the company an equity stake in its broadband network expansion project. Recall over the prior session, the company declined over 4% on regulator pressure to split its operations into retail and wholesale holdings. Japanese automakers Nissan and Isuzu were boosted, with the former forecasting better than expected sale levels in China and the latter planning to offer low-priced truck models in emerging markets. In Nikkei tech, local press speculated NEC would announce the details of the previously announced merger with Renesas, as both Hitachi and Mitsubishi Electric are said to invest as much as ¥140B in the venture. In Korea, Posco was speculated to plan a bid for Daewoo International, while the company's engineering unit received a $350M award for a project in Latin America.

- In currencies, Australian Dollar reverses prior session's post-RBA decline, approaching multi-month highs against USD and outperforming European majors. AUD/USD stalled its rally 20 pips shy of 13-month highs around 0.8680, GBP/AUD fell to multi-month lows under 1.9050, and EUR/AUD dropped below 1.6950. In European majors, Euro is constrained by intraday US highs around 1.4680, while GBP/USD retained a weak tone below 1.65. Japanese Yen traded sideways against the greenback, bouncing within 10 pip range on either side of 91.00. In emerging Asian FX, South Korean FX authorities had reportedly intervened to stall KRW appreciation after Deputy Finance Minister Hur said the administration would take action against sudden Won fluctuations.

- Crude oil opened the Asian session lower, following the release of bearish weekly API inventories data (API PETROLEUM INVENTORIES: CRUDE: +630K V -2.5ME GASOLINE: +1.34M V +750KE; DISTILLATE: +5.2M V +1.5ME). However, oil prices have since pared some of their losses and prices have so far ranged between $70.63-70.14/bbl. In NY floor trading, oil prices rose by more than 2.5% and closed above $70/bbl, supported by the US retail sales data, weaker dollar and earlier comments from Fed Chairman Bernanke. In Japan, the newly appointed Finance Minister Fujii was quoted in the press as saying that he favors ending the gasoline tax in the world's 3rd largest oil importer. The Japanese gasoline tax is currently approximately ¥25/liter. Upcoming event risks for oil prices include the later today releases of US weekly Department of Energy inventories and Aug industrial production data. Spot Gold is higher by more than 0.05% and has traded between $1,009.96-$1,006.50. Gold is tracking the weaker dollar, as the dollar index moved to a 1-yr low earlier during the session. In terms of upcoming key events for the gold market, traders could focus on the later today releases of US CPI and net long-term TIC flows data. Shanghai Copper prices have risen by more than 0.50%, supported by the earlier released US retail sales data. In other Chinese related commodities news, the Shanghai Futures Exchange noted that it would temporarily raise margin requirements for certain metals contracts from Sept 29 to Oct 9. The higher margin requirements would impact metals such as copper and gold. The Shanghai Futures Exchange said that it plans to implement the measure in order to limit volatility during China's 8-day National Day holiday, which begins on Oct 1.