The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥105.95 level and was capped around the ¥106.95 level. Traders continue to buy the yen on account of elevated global risk aversion stemming from recent heightened volatility in the financial markets. The yen benefits from such risk aversion because the yen is used a funding vehicle in short yen carry trades in which the yen is borrowed and proceeds are invested in higher-yielding currencies. When assets in higher-yielding currencies depreciate, there is less incentive to sell yen in the market and correspondingly, the yen appreciates. Data released in Japan overnight saw the December merchandise trade surplus fall for the second consecutive month, off 20.9% y/y to ¥877.87 billion and an acceleration from November’s 12.2% y/y decline. In political news, LDP officials urged Prime Minister Fukuda to take measures to support the declining stock market as fears mount of a global recession. The Nikkei 225 stock index gained 2.06% to close at ¥13,092.78. Dollar bids are cited around the ¥104.20 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥157.35 level and was supported around the ¥154.85 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥210.40 and ¥98.20 levels, respectively. In Chinese news, many Chinese economic data were released today. First, 2007 GDP was up 11.4% with Q4 GDP up an annualized 11.2%. Second, 2007 retail sales expanded 16.8% to CNY 8.92 trillion. Third, 2007 PPI was up 3.1% after December’s 5.4% y/y increase. Fourth, 2007 CPI was up 4.8% y/y after December’s 6.5% rise.