By Dow Jones Business News, October 02, 2013, 07:53:00 AM EDT
-- ECB policy announcement at 1145 GMT
-- Focus on ADP report release in U.S. hours
By Chiara Albanese
The yen is pushing higher, while Japanese stocks fall, amid continuing nerves about the U.S.'s political gridlock and
disappointment over a new set of Japanese tax policies.
The dollar dipped to Y97.26, marking the yen's strongest level since Aug. 28, just after Europe started trading. Yen
strength was also felt against other currencies such as the Australian dollar, which lost about 1.3% of its value
against the Japanese currency.
Overnight, Japanese Prime Minister Shinzo Abe said he would go ahead with a plan to increase the consumption tax by
three percentage points next April. But the move fell shy of market expectations; markets had also expected a further
reduction in Japan's 38% corporate tax, one of the highest in the industrial world. A final decision on the tax will be
made in December.
The Nikkei stock index lost about 2% after the prime minister pledged to "seriously review" further cuts, but stopped
short of offering a reduction. The yen duly followed its typical negative correlation with equities and cranked higher.
In the short term, the dollar may find it difficult to recover.
"The dollar's ability to stay above Y97.50 will depend on the U.S. side of the equation," said Geoffrey Kendrick and
Calvin Tse, analysts at Morgan Stanley in Hong Kong. Looming risks over the U.S. economy aren't only linked to the
current shutdown but also to Washington's ability to reach a deal on the budget and debt ceiling later this month.
Attention will swing back to Europe later in the day, with two key events in the focus.
The policy announcement of the European Central Bank is due at 1145 GMT, followed by President Mario Draghi's press
conference at 1230 GMT. In Italy, Prime Minister Enrico Letta is seeking a confidence vote for his government.
The main data release in U.S. hours will be the ADP private employment report at 1215 GMT; analysts expect a reading
in line with the year average of 175,000. The indicator could enjoy unusual attention as the likelihood that the
official payrolls data--the key gauge of the U.S. labor market's health--won't be released Friday following the
government shutdown is increasing. The Bureau of Labor Statistics confirmed that it won't collect data until the Federal
government resumes operations.
Forex spot: EUR/USD USD/JPY GBP/USD AUD/USD
Spot 1049 GMT 1.3518 97.44 1.6205 0.9347
NY Close 1.3526 98.01 1.6203 0.9399
Forex Spot: EUR/USD USD/JPY GBP/USD AUD/USD WSJ Dollar Index
Spot 1100 GMT 1.3520 97.403 1.6203 0.9346 72.531
(Previous Day) 1.3526 98.004 1.6196 0.9398 72.580
--Francis Bray contributed to the article.
Write to Chiara Albanese at firstname.lastname@example.org
(END) Dow Jones Newswires
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