Asian Market Update: BOJ raises assessment after strong industrial sector data, but sees more economic uncertainty with high downside risks; China's NDRC upbeat on prospects, while US Steel joins the protectionism accusations fray

- Asian equity markets extended a string of winning sessions as regional index board was unanimously in the green. Basic materials and energy sectors once again led the way, with the Nikkei225 rising over 1% before paring some of those gains following the Bank of Japan decision. China markets reversed prior session's losses, picking up 1.5%, with Hang Seng and ASX matching those gains. Taiex and Kospi lagged those advancers but still traded higher, rising just over 0.5%. Ahead of the Thursday session in the US, front-month S&Ps are up by nearly a full percentage point, looking forward to extending industrial production inspired gains as investors get a fresh look at the US housing sector via Building Permits and Housing starts reports.

- Bank of Japan marked the primary economic calendar event, raising its assessment after taking a break from three consecutive upgrades in August. Specifically, policy makers said the economy was showing signs of recovery, citing improvement in exports and industrial output. That sentiment was largely supported by Tertiary industry and BSI Manufacturing data ahead of the decision, with both figures improving on balance. July Tertiary index came in at 0.6% v 0.5% expected, and BSI Large Manufacturing registered its first positive print since December of 2007 at +15.5 v -13.2 prior. Bank of Japan optimism was however tempered by persisting downside potential from erratic consumption and deteriorating labor sectors. Furthermore, BOJ allowed for deflationary forces to accelerate before moderating in the second half of the year. In terms of its quantitative easing response, BOJ kept its monthly bond buying program at ¥1.8T, sending Nikkei financials lower on disappointment that the extraordinary measures would not be extended past December expiry as speculated by the press earlier. In second-tier economic data elsewhere in Asia, Australia indusrial trends sentiment as measured by Westpac ticked to 1-year high of 48.2. In New Zealand, Business PMI deteriorated slightly to 48.7 from last month's 49.6.

- In notable speakers, China's state planning NDRC agency helped reverse the decline in mainland markets, forecasting Q3 GDP reaching 9% and Q4 GDP to improve further from there, "likely" reaching double-digits. Furthermore, NDRC urged China monetary authorities to remain flexible, suggesting that much of the growth is still accelerating on stimulus measures. China Commerce Ministry weighed in on US Steel alleging trade abuse against Chinese steel pipe companies, noting that the anti-dumping petition the US company filed with ITC "stokes protectionism". In Australia, Treasurer Swan also remained cautious in terms of maintaining stimulative policy, noting that substantial threats remain to economy with employment recovery still being a top priority. Over in South Korea, Finance Minister Yoon echoed Australia and China officials in calling for expansionary policy while also forecasting domestic economy likely to expand beyond earlier stated targets.

- In equity-specific developments, pressure on Japanese financial firms in the wake of BOJ decision was compounded at Mitsubishi UFJ as it offered to sell ¥106B of subordinated bonds and ¥25B in preferred debt securities. Among large gainers, Toyota traded up by as much as 2% following its announcement of a $1B marketing and advertising drive for Q4 in the US markets, 30-40% higher than the company generally spends on advertising in the region. Steelmaker JFE Holdings rose slightly after Japanese press said the company may restart the Kawasaki blast furnace by as early as Oct. Outside the Nikkei, Doosan Heavy rose 6% on the Kospi after being awarded a $1B order from a client in Saudi Arabia. In Sydney, Woodside Petroleum was stronger after confirming a large oil discovery at the Venus exploration well in Sierra Leone where the company holds a 25% jv stake. Graincorp was also stronger, commenting on improved underlying profitability while guiding FY09 NPAT A$53-63M v A$57Me. On a related note sending Australian agricultural commodities higher, US climate data center research findings suggested rising El Nino prospects, citing warmest August ocean-surface temperatures on record.

- In currencies, European majors consolidated their gains made against the greenback in the US session, with EUR and GBP ranging narrowly around 1.4720 and 1.6480. Commodity currencies continue to outperform, as AUD/USD tested multi-month highs above 0.8750, NZD/USD marching toward 0.7150, and USD/CAD falling to 1.0650. Japanese Yen was a touch weaker on broad risk appetite, with USD/JPY rising back above 91.00 and EUR/JPY approaching September highs above 134.40.

- Crude oil opened the Asian session lower on profit-taking, but prices have since pared some of their losses. Oil prices have received some support from the weaker dollar and early equity gains in China. During the US session, oil prices rose sharply and closed above $72/bbl, driven by the weaker dollar, bullish US Department of Energy weekly inventories data (DOE CRUDE: -4.7M V -2.5ME; GASOLINE: +547K V +750KE) and stronger than expected US industrial production data.
Upcoming events of interest for energy markets include US weekly natural gas inventories, housing starts and weekly jobless claims. Spot Gold prices are gaining and have so far traded just shy of $1,020/oz. Gold continues to benefit from the weakness in the dollar, particularly against the commodity currencies. In terms of physical demand for gold, the SPDR Gold Trust ETF increased its holdings by 7.6 metric tons to 1,086 metric tons as of Sept 16. This was the first time that the ETF raised its gold holdings, since it bought 1.2 metric tons on 9/14. In other commodities, Shanghai Copper prices are higher on the advance in Chinese equities. Additionally, copper prices have been lent support from the earlier released US industrial production data.