Yen Choppiness Resumes
At 4:30 AM UK July PS net borrowing (exp -6.1 bln sterling, prev 7.443 bln sterling)
UK July PSNCR m/m (exp -11.0 bln sterling, prev 10.339 bln sterling)
At 10:00 AM US July Leading Indicators (exp 0.4%, prev -0.3%)

The foreign exchange market remained volatile in early Tokyo trading, with the yen pairs leading the movement amid lingering risk aversion. Although last week's 50-basis point cut in the Fed's discount rate tempered growing fears of a credit crunch and its impact on the economy, traders will remain cautious as it remains uncertain whether the FOMC will cut the Fed fund rate next month. The major currencies rebounded against the yen on Friday and continue to hover around those ranges, with dollar/yen near 114.20 and euro/dollar steady just beneath the 1.35-level.

The week ahead is light on key economic data, but some highlights include the Bank of Japan's monetary policy decision, Japan's trade balance, Germany's ZEW survey, Germany's GDP, UK GDP and US durable goods orders. However, the currency market will likely take its cues from the credit and equity markets.

Fears of deterioration in banks' balance sheets as a result of the subprime debacle will continue to plague the markets. Over the weekend, Germany bailed out Sachsen LB, its second bank bailout in less than a month, increasing worries of the scope of the credit crunch. Global central banks will stand ready to continue to step in as needed in order to smooth out market volatility.

Given the global economic scenario, we expect the Bank of Japan to leave policy unchanged when it announces its decision later in the week. Key speeches from the MoF's Finance Minister Omi and BoJ Governor Fukui will be closely scrutinized for any signals of the scope and timing of any potential rate moves. We anticipate the BoJ will remain on hold for the remainder of the year and tighten policy early in 2008