Dollar Mixed; Bank of Japan Eases Policy

The U.S. dollar was mixed at the start of the new week, with the absence of the London markets serving to dampen turnover.

The reluctance of the Bank of Japan to get ahead of market expectations saw the yen recover smartly after the greenback neared JPY86. Initial support for the dollar near JPY84.50 is likely to be tested shortly. For its part, the euro has been confined to its pre-weekend range. Three times in as many sessions, the euro was turned back from approaching $1.2780. Initial support is seen near $1.2680-$1.2700.

Sterling is among the best performing of the majors, even though the Hometrack house price index posted a large decline and the Britain Chamber of Commerce opined the Bank of England is on hold until the second half of 2011, with the risk of a double dip. Cable faces resistance in the $1.5600-20 area. Emerging market currencies were narrowly mixed.

The recovery in U.S. share prices Friday is helping to underpin equity markets Monday. The MSCI Asia-Pacific Index rose a little more than 1%, led by a 2.4% gain in the Shanghai Composite. This in turn may have helped the Hang Seng snap a six-day losing streak. The Nikkei managed to rise almost 1.8%, but after being up more 3.2%, this was a bit disappointing. South Korea's Kospi was aided by the government's decision to ease mortgage rules.

European bourses were mostly higher, but struggling to build on the initial gains. The Dow Jones 600 is up around 0.2% near midday in London, led by health care and utilities. Industrials and telecoms are drags. There is much talk of France's Sanofi Aventis (SNY) $18.5 billion cash offer for Genzyme(GENZ). The early call is for a marginally higher opening in the U.S. markets.

Global bond markets were subdued after the sharp U.S. Treasury selloff in response to comments from Federal Reserve Chairman Ben Bernanke at Jackson Hole, Wyo., before the weekend. Treasuries are firmer, paring some of those losses, with yields off two to three basis points.

The rise in Japan's shares and the BOJ's decision not to increase its rinban (bond purchases) operation from the current JPY1.8 trillion a month helped lift the 10-year JGB yield 3 basis points to resurface above 1%. Core European bonds -- Germany, France, Netherlands - were seeing a 4-5 basis points decline in 10-year yields.

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