CNY/USD Fundamental Outlook at 1500 GMT (EST + 0500)

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥92.10 level and was supported around the ¥91.60 level. Bank of Japan today reported the economic recovery is continuing but added there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.  BoJ also noted exports and production will continue to improve and regarding deflation, the BoJ added the year-on-year pace of decline in consumer prices...to remain more or less unchanged for the time being, and then moderate as the aggregate supply and demand balance improves gradually. As expected, Bank of Japan voted yesterday to unanimously to maintain its overnight call rate at 0.1%, the same official target level it has been at since December 2008.  BoJ Governor Shirakawa reported the key to putting Japan out of deflation is improving productivity.  He also noted the central bank will monitor the impact of Toyota's massive vehicle recall on overall Japanese production and the impact of Europe's debt crisis.  The government had been pushing the BoJ to expand policy further to counter strong deflationary pressures.  Finance minister Kan today said the Bank of Japan and government are basically pointing in the same direction.  The government will do its part with fiscal and tax policy, while the central bank will use monetary tools.  The Nikkei 225 stock index lost 2.05% to close at ¥10,123.58. 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 ¥123.55 level and was capped around the ¥124.35 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥140.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.30 level. In Chinese news, the U.S. dollar remained steady vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8333 in the over-the-counter market.  Chinese financial markets were closed for the Chinese New Year holiday.  Last week, People's Bank of China reconfirmed it will gradually guide monetary conditions back to normal levels from the counter-crisis mode but then the central bank lifted reserve requirements by 0.5%, effective 25 February. The central bank is clearly trying to contain inflationary pressures and avert asset bubbles.  Some China-watchers believe the central bank could allow the yuan to appreciate some 5% in the coming months.