The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.25 level and was capped around the ¥90.90 level.  Finance minister Kan urged Bank of Japan to continue implementing appropriate and flexible policies and work closely with the government to combat deflation.  BoJ Governor Shirakawa last week reported it is a critical challenge to root out deflation but said this week that a lack of final private demand is the root cause of deflation and there is no magic wand to lift prices.  Kan also said it is possible that the yuan will be one of the agenda items. I will discuss it on the understanding that stable growth in China is desirable for Japan.  Notably, bids fell short of the BoJ's offer today in its open market operation as part of the central bank's lending program announced in December.  Prime Minister Hatoyama said the budget environment in 2011 will remain severe. Bank of Japan Chief Economist Momma yesterday 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.  The Nikkei 225 stock index gained 1.63% to close at ¥10,371.09.  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 ¥125.80 level and was capped around the ¥126.80 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥143.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥85.45 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8271 in the over-the-counter market, down from CNY 6.8275.  A rumour circulated through the market last night that China will permit the yuan to appreciate after July. People's Bank of China adviser Fan Gang yesterday 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