The markets are trying to catch their collective breath after yesterday’s dramatic moves. The sharp slide in US equities may have weighed on Asian markets, but losses are mild. Still, the MSCI Asia-Pacific Index was off 0.8%, the fifth consecutive losing session. European bourses slightly firmer, but appear to be awaiting the US open for stronger directional cues.  

Debt markets are stable to slightly higher but are hardly recouping yesterday’s slide. Yields are 1-2 bp lower, though Portuguese bonds continue to underperform. The US 10-year is holding above 1.70%.  

The US dollar advanced yesterday and is in narrow ranges with a mostly softer bias today. The exception is the Japanese yen. Japanese press have reported that more negative rates are under consideration may have contributed to the weakness of the yen.  Note that today may be the fourth session of the past five that the greenback advances against the yen. Broadly speaking, it appears the backing up of interest rates offsets the weakness in equities as driving the yen.  

We suspect the kernel of truth behind the reports of negative rates is that officials do not want to rule any action out. Also, recall that the negative rates apply to a small part of deposits at the BOJ. They could widen the coverage of negative rate, which is broaden its applicability rather than deepen the cut.   

A Bloomberg poll found a little over half the economists expect the BOJ will expand monetary stimulus next week. Of those that do see a move 53% anticipate a deeper cut in the negative rate and a little more than a third (35%) think the BOJ will buy more government bonds.  

The dollar is rose to a six-day high against the yen near JPY103.35. Above here, resistance is seen in the JPY103.85 area and then August high in the JPY104.00-JPY104.30 area. Intraday technicals and the easing of the upside momentum on yields warns that the dollar may struggle to extend its gains without new news. On the downside, initial support is pegged around JPY102.70.