The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.45 level and was supported around the ¥90.80 level. Data released in Japan overnight saw revised December machine tool orders up 27.2% m/m and +63.4% y/y. As expected, Bank of Japan kept its assessment of the economy unchanged overnight and did not include exchange rates and stock price volatility as risk in its assessment. Notably, the central bank also improved its assessment of the domestic housing market and upgraded its view on financial market conditions for the first time in four months. BoJ said the economy is picking up but remains in a difficult condition. BoJ Governor Shirakawa reported demand for funds from small companies remains weak. Data released in Japan yesterday saw December consumer confidence print at 37.6. Former Bank of Japan Policy Board member Hirano reported a weak yen is positive for Japan's economy. Prime Minister Hatoyama, whose government is embroiled in a funds scandal, said the government and BoJ must cooperate in combating deflation. This scandal has been brewing for several months but some traders believe the problems are worsening and could prevent the government from enacting needed reforms and budget agreements. There is increasing speculation the central bank will extend its near-zero per cent interest rate policy and possibly ramp up fund injections into the economy. Group of Seven finance ministers are expected to discuss exchange rates in Canada when they convene on 5-6 February. The Nikkei 225 stock index lost 0.25% to close at ¥10,737.52. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥128.40 level and was capped around the ¥130.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥147.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.95 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8270 in the over-the-counter market, down from CNY 6.8277. People's Bank of China today instructed some banks to restrict lending and will restrict overall credit growth in China to CNY 7.5 trillion in 2010. People's Bank of China guided its benchmark one-year bill yield to its highest level in fourteen months to moderate record loan growth and slow asset bubbles. PBoC sold bills at a rate of 1.9264% in open-market operations and this is the central bank's latest signal that it is intent on tightening monetary policy this year. Many economists foresee a GDP growth rate above 10% this year.
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