The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.15 level and was capped around the ¥89.70 level. Traders moved back into lower-yielding currencies today on some weakness in global equity markets and other factors. News that North Korea and South Korea exchanged fire off their coast led to some reduction in long yield trades overnight and this led to a stronger yen. Bank of Japan kept its monthly economic assessment unchanged and noted the economy is picking up, adding it will continue to improve at a moderate pace. The central bank also said the decline in consumer prices is moderating and housing investment has stopped falling. As expected, Bank of Japan's Policy Board yesterday kept its overnight call rate unchanged at 0.1% and kept its economic assessment intact. The central bank upwardly revised its deflation forecast for the fiscal year that begins in April and is now eyeing a decline of 0.5%, better than the 0.8% decline in prices it predicted in October. The yen yesterday shook off a report from Standard & Poors that it placed a negative outlook on Japan's 'AA' sovereign long-term credit rating from stable and noting it may issue a downgrade to AA-. S&P expressed concern with Japan's falling economic policy flexibility, escalating debt levels, and growing deflationary pressures. Finance minister Kan reacted by saying I am aware that it is extremely important to maintain fiscal discipline and move ahead with fiscal reforms to retain the trust of international markets. The Lower House of Parliament enacted a ¥7.2 trillion supplementary budget on Monday to bolster the weak economy and the measure will likely be voted on by the Upper House tomorrow. Kan also said he still wants more from the BoJ to support economic growth. The Nikkei 225 stock index lost 0.71% to close at ¥10,252.08. 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 ¥125.20 level and was capped around the ¥126.35 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥145.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥85.05 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8269 in the over-the-counter market, down from CNY 6.8268. Deputy People's Bank of China Governor Zhu reported A stable yuan is also good for both China and the world. Data released in China last week saw inflation accelerate 1.9% in December with gross domestic product climbing to 10.7% and this renders it likely People's Bank of China will tighten monetary policy this year. PBoC this week reported it asked lenders to avoid excessive credit concentration and manage the pace of loan growth. Bank of China and Construction Bank of China have started restricting new loans. People's Bank of China is said to have lifted some Chinese banks - possibly including China Citic Corp and Industrial and Commercial Bank of China - to lift their reserve ratios by an additional 50bps today, following a decision on 12 January for all banks to lift by 50bps to 16.00%.
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