The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥106.60 level and was capped around the ¥108.30 level. The pair reached its lowest level since June 2005. The yen rallied as sentiment in the U.S. equity market continued to weaken ahead of Citigroup’s weak earnings report today that saw the firm post its biggest loss of all time in Q4 2007. With global equity markets on the defensive, there is less demand for short yen carry trades in which proceeds are invested in overseas markets. Bank of Japan Governor Fukui was today quoted as saying The Japanese economy is slowing for the time being but it is expected to continue its moderate expansion subsequently. Fukui added the impact of the sub-prime mortgage crisis on Japan’s banking system was larger than expected. The markets are beginning to price in a BoJ rate cut this year but the most probable scenario involves no change in the overnight call rate from 0.50%. The Nikkei 225 stock index lost 0.98% to close at ¥13,972.63. Dollar bids are cited around the ¥106.30 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥158.85 level and was capped around the ¥161.05 level. The British pound and Swiss franc came off vis-à-vis the yen as the crosses tested bids around the ¥209.95 and ¥98.05 levels, respectively. The Chinese yuan appreciated sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.2421 in the over-the-counter market, down from CNY 7.2516 – the pair’s lowest close since the yuan revaluation of July 2005.