Yen touches strongest level in six months; Nikkei barely rises, Kospi jumps

Summary:

• Oil was subdued, with the only fresh Middle East item an attack by Houthi missiles and drones on Khamis Mushait and Abha airport in Saudi Arabia.
• The yen reached a six-month high against the dollar, with USD/JPY briefly dropping below 153.00, supported by speculation about a GPIF asset-allocation change and rising BOJ rate-hike bets, plus an upwardly revised Q2 GDP reading and solid July wage figures.
• The stronger yen held the Nikkei back, leaving it with a 0.07% gain in morning trade, while South Korea's Kospi climbed nearly 2%.
• AUD and NZD both eased, the former hurt by a weak NAB business survey and reports that China's CMRG has moved to halt Rio Tinto talks, the latter by RBNZ's Gai suggesting the key rate may already sit in neutral territory.
• August trade numbers from China had exports on target and faster than in July, while import growth of 28.2% came in under the 30% prediction, a softer signal for the domestic demand rebound.

Crude traded quietly on Tuesday, and the Middle East produced only one new headline: a Houthi missile-and-drone attack on Khamis Mushait and Abha airport in Saudi Arabia, an event far too limited to move the broader market.

Gold was little changed as there was no fresh news to drive trading.

The yen was the main market mover. Building on a recent rally, it reached a six-month high against the dollar, and at one point USD/JPY dipped below 153.00. A more positive view of the currency emerged from speculation that the Government Pension Investment Fund might change how it allocates assets, along with growing conviction that the Bank of Japan would deliver faster rate increases, analysts said. The day's numbers also strengthened that outlook: solid July pay growth and a higher second-quarter GDP estimate both made a stronger case for BOJ tightening when the meeting takes place next week.

Japan's stock market paid the price for the firmer yen: the Nikkei could only muster a tiny 0.07% rise in morning trade, with currency strength cancelling out bargain-hunting in other parts of the market. South Korea's Kospi turned in a much stronger performance, climbing almost 2% in the morning session thanks to widespread buying.

The Australian and New Zealand dollars both came under modest pressure. The Australian dollar lost ground following the NAB survey, which revealed a slide into negative territory for business conditions, a steep drop in profitability and a corresponding retreat in confidence. More significant for the AUD was the news, first carried by Reuters on August 6, that CMRG had ordered some steel mills to pull out of Rio Tinto negotiations. With September now under way, that order appears to be taking hold, and it strengthens Beijing's position in the annual iron ore bargaining. The New Zealand dollar also faced light pressure from RBNZ Monetary Policy Committee member Prasanna Gai, who suggested the key rate might already be at a neutral setting.

The last economic release of the session was China's August trade numbers. Shipments from China came in exactly at the expected level and quickened versus July, a confirmation of the export-led expansion that has shaped China's year so far, with high-tech goods, cars and semiconductors doing most of the work. Imports drew more attention. Growth of 28.2% fell short of the 30% projection, an indication that the internal demand upswing investors were waiting for remains slower than anticipated, although the pace still represents a clear step up from July.