Bank of Tokyo-Mitsubishi - "EUR: The euro is continuing to outperform alongside the US dollar likely supported by euro-zone residents repatriating funds from overseas. Heightened QE tapering expectations are leading to a significant tightening in global external financing conditions boosting the appeal of the low yielding but more liquid euro and US dollar. The euro-zone’s widening current account surplus also adds to the euro’s relative appeal compared to the US dollar in the current trading environment while the US still runs a sizeable current account deficit although narrowing. Improving cyclical momentum in the euro-zone is helping to support the euro through both raising euro-zone short rates, and to a greater degree through reducing the credit risk of fiscally challenged euro-zone government bonds. In the week ahead, the second release of US GDP report for Q2 may impact Fed QE tapering expectations. The report is expected to reveal a significant upgrade to the initial estimate of Q2 GDP driven primarily by the drag from net trade being revised away.
JPY: Although the volatile equity market is weighing on USDJPY the yield spread widening between the US and Japan is supporting USDJPY as is Japan’s notable trade deficit. Japan CPI will be released next week and if we see the core-core CPI (ex food and energy) moving higher, market expectations of lower real yields in Japan will help encourage renewed selling of the yen as a sign of success in ‘Abenomics’. Since the market tried the lower side of USDJPY earlier this week and found strong support at the 97.00 level, USDJPY may well now edge higher and may possibly test the 100.00 level next week. Of course there will be no big jump ahead of US NFP on 6th of September."