There are three developments in Japan to note: Political compromise over the retail sales tax hike, outcome of the BOJ meeting and economic developments. Despite some press reports playing up the likelihood of official intervention, we continue to see the odds as slight. The dollar-yen exchange rate remains confined to a JPY78-JPY79 trading range.

While the euro has recovered around 4% against the yen since late July, we expect a return to the lows as the European debt crisis remains unresolved (and arguably unresolvable in the near- to intermediate term).

1. A deal was struck late in Tokyo today that secures the LDP and New Komeito parties support for the Prime Minister's retail sales tax hike in the upper house of the Diet. Elections will be called shortly after the bill passes. No specific date has been announced, but a fall election looks likely.

The LDP had helped secure Noda