[DanRath]

Lower government bond yields in both the US and the Eurozone led EURJPY to ease off overnight, despite the improvement in equities. Positive data out of Japan in the form of a better-than-expected Tertiary Industry Index led USDJPY a little lower before reports from China of a three-year moratorium on expanding steel production led to a sell-off in Shanghai stocks and yen crosses. Although the technical outlook has improved with 139.90 (May high) the 141.40 upper channel resistance the next levels to watch, the fundamental picture is less bullish. With an expanding output gap in the Eurozone, expectations of inflation and therefore bond yields are going to be under a lot of pressure to fall; and the worsening yield differential should put both EURUSD and EURJPY under significant pressure. Next week will see Japanese corporates and investors return; the focus will also be on the likely policy directions of a DPJ government as we approach the 30th August elections.