Marketmind: The final countdown

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever

Thursday, Oct. 13. 08:30 Eastern, 1230 GMT.

That is the moment U.S. September inflation data will be released, and when central banks around the world will have a clearer idea if they will need to wade into the foreign exchange market to support their currencies.

For some, it will be new territory. For others, it will be familiar territory. For all of them, being forced to spend billions of dollars of FX reserves is uncomfortable territory.

The dollar’s record whoosh this year is wreaking havoc on global markets. A strong U.S. inflation print will likely push it even higher, intensifying the battle-ready resolve of central banks around the world.

Policymakers in Asia are on the front line, most notably those in Tokyo. The dollar is at a fresh 24-year high of almost 147.00 yen, above the levels that prompted the Bank of Japan to spend $20 billion in yen-supporting FX intervention last month.

GRAPHIC: Japanese yen & import prices –

The BOJ has deeper pockets than its peers, but dollar/yen is a far deeper market. Policymakers across the continent will probably be hoping for a soft U.S. inflation report, which would likely buy them some time.

But any relief might be fleeting. Liquidity across all markets is thin, and demand for collateral – mainly dollars – is high. Cross-currency basis swaps, essentially a measure of dollar shortage and overall stress in the market, are at alarming levels.

U.S. Treasury Secretary Janet Yellen said on Tuesday she sees no signs of stress or undue volatility in financial markets. Investors and policymakers around the world are unlikely to share her sense of calm, especially if U.S. inflation on Thursday comes in hotter than expected.

Key developments that could provide more direction to markets on Thursday:

IMF/World Bank meetings in Washington

Japan bank lending (September)

Japan producer price inflation (September)

China 1-year lending rate decision

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