The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.25 level and was capped around the ¥90.05 level. There is little conviction in yen trading now as traders weigh increasing global risk aversion against Japan's poor economic performance and deflationary pressures. Data released in Japan overnight saw December machinery orders up 20% m/m, defying expectations of an 8% increase. It was also reported that January producer prices declined for a thirteenth consecutive month, off 2.1% - the longest streak in six years. Even though this was better than December's 3.9% slide, the negative print coincided with increases in commodity costs and these data simply reaffirm the deflationary pressures evident in the economy from a lack of final private demand. Corporate profits will be squeezed as a result to the extent that companies cannot pass along any semblance of factory gate price pressures to consumers. BoJ Deputy Governor Yamaguchi this week warned economic growth may stall temporarily and said growth may be in a pretty severe state through this summer, so we can't really expect a rapid expansion. The Nikkei 225 stock index lost 0.19% to close at ¥9,932.90. 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 ¥122.65 level and was capped around the ¥124.25 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥139.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.70 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8320 in the over-the-counter market, up from CNY 6.8267. The Chinese military was on the tape overnight saying the markets should sell U.S. Treasury debt to punish the U.S. for reaching a military deal with Taiwan. People's Bank of China Governor Zhou hawkishly said Right now the inflation rate has started to go up, but the level is still relatively low. We need to closely watch (the level of inflation). Some economists expect China's consumer price inflation likely advanced 2.1% y/y last month. Japanese think tank Nomura Institute of Capital Markets today reported China may permit the yuan to strengthen at an annual rate of 5% vis-à-vis the U.S. dollar after possibly raising borrowing costs in June. Data released in China saw January exports rise at a slower-than-expected rate as overseas sales were up 21% y/y.
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