The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥105.80 level and was capped around the ¥106.65 level. The pair is now less than 100 pips away from its lowest level since May 2005. Data released in Japan overnight saw January retail sales rise 1.5% y/y, the sixth consecutive month of higher retail sales. In contrast, January industrial output fell 2.0% m/m, the first decline in two months. Data to be released tonight include consumer inflation, unemployment, and housing. The government released a fiscal assessment overnight that concludes the overall fiscal situation remains severe. Bank of Japan Policy Board member Mizuno reported The Japanese economy, beset with troubles both at home and abroad, is now in a soft patch-like situation, and I also see the risk that this situation may be prolonged. While problems in Japan are expected to fade in the year to March 2009, downside risks stemming from factors outside Japan, such as the volatile financial markets, may grow. Given the increased downside risks, we can not rule out the possibility of the Japanese economy posting lower growth than its potential growth rate. There is growing speculation the Japanese economy has become more susceptible to downside economic risks in the U.S. economy. The Nikkei 225 stock index lost 0.75% to close at ¥13,925.51. Dollar bids are cited around the ¥104.20 level. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥160.10 level and was capped around the ¥161.05 level. The British pound and Swiss franc depreciated vis-à-vis the yen as the crosses tested bids around the ¥210.15 and ¥99.90 levels, respectively. The Chinese yuan appreciated sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.1133 in the over-the-counter market, down from CNY 7.1420 – the pair’s lowest close since the yuan revaluation of July 2005. A government think-tank reported Q1 GDP will be up about 10.5% with consumer price inflation up 6.9%.