The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.95 level and was supported around the ¥89.85 level. Bank of Japan Chief Economist Momma reported the risk that the Japanese economy will fall off from a cliff is small, but there is still a long way to go. Even if the global economy continues to recover, the spread of that to capital spending and the labour market will be limited. Momma also indicated capital spending will not indicate signs of a rebound until the fiscal year beginning in April 2011 and said the labour market will also remain weak. Core consumer prices data that were recently released confirmed a 1.2% decline in December, the latest evidence of entrenched deflationary pressures. Momma predicted the pace of the decline in CPI will be around 1% for some time. Many BoJ-watchers believe the central bank will introduce new emergency liquidity provision programs in Q1 or early Q2, possibly including an increase in its purchase of Japanese government bonds. The markets continue to speculate that the downward trajectory of Japanese interest rates will continue with March 2010 Euroyen futures contracts indicating a rate of 0.420%, compared with 0.360% for September 2010. The Nikkei 225 stock index climbed 0.07% to close at ¥10,205.02. U.S. dollar offers are cited around the ¥94.75 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥126.50 level and was supported around the ¥124.65 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥144.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥85.90 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8275 in the over-the-counter market, up from CNY 6.8269. People's Bank of China adviser Fan Gang reported China's real worry remains asset bubbles that could emerge as China's economy emerges from a crisis period into a boom time. Fan also noted moves by PBoC to reduce liquidity last month were timely and necessary. There is speculation that PBoC may hike rates when consumer price inflation rises above 2.5%. Data released in China today saw January PMI recede to 55.8 from 56.6 in December.