Asian session: The yen remained stronger versus the dollar

The yen remained stronger versus the dollar as a rally in equities worldwide spurred speculation the Bank of Japan will refrain from additional monetary easing at a policy meeting that starts tomorrow. The BOJ probably won’t change its view that Japan’s economy is picking up moderately, the Nikkei newspaper reported, without saying where it got the information. All 17 economists in a Bloomberg survey forecast the central bank will keep its benchmark overnight target rate at 0.1 percent at this week’s two-day meeting.

This will be the first central bank meeting with new board members Takahide Kiuchi and Takehiro Sato, who have both signaled willingness to consider fresh forms of easing.

Demand for the euro was supported after Merkel’s government backed ECB President Mario Draghi’s proposals on bond buying to help bring down borrowing costs in Spain and Italy. Germany is “not worried” by Draghi’s announcement of Aug. 2, deputy Merkel spokesman Georg Streiter told reporters in Berlin yesterday, when asked whether the government is concerned that ECB independence might be compromised. Draghi outlined a plan last week under which the ECB may buy debt of struggling euro-bloc countries in tandem with the euro area’s bailout fund, while saying the details still need to be worked out over the coming weeks.

Italy’s Monti said that disagreements within the euro area are detracting from the policy response to the debt crisis, according to an interview with Germany’s Der Spiegel magazine published Aug. 5. He said he backed the ECB’s willingness to address “severe malfunctioning” in the government bond market.

The Australian dollar rose to the highest in more than four months after the nation’s Reserve Bank kept interest rates unchanged at 3.5 percent at a policy meeting today.

EUR/USD: during the Asian session the pair was traded in range $1.2385-$1.2405.

GBP/USD: during the Asian session the pair fell, dropping below $1.5600.

USD/JPY: during the Asian session the pair traded in a range Y78.15-Y78.30.

Core-European data sees Italy industrial output for June as well as the flash estimate of Q2 GDP data at 0800GMT. Germany manufacturing orders for June are due at 1000GMT and are expected to come in at -1.0% m/m, -7.2% y/y. UK data at 0830GMT includes weekly fuel prices as well as Industrial Production. US data starts at 1145GMT with the weekly ICSC-Goldman Store Sales data, followed at 1255GMT by the weekly Redbook Average. At 1400GMT, the Canadian Ivey Purchasing Managers Index for July is due. Later on, at  1830GMT, Federal Reserve Chairman Ben Bernanke hosts a town hall meeting with educators from across the country at Board headquarters.