The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.90 level and was capped around the ¥89.35 level. The verbal skirmish between Bank of Japan and the government continued with the latter saying it will not seek a change in law to permit the former to purchase new Japanese government bonds. Yesterday, financial services minister Kamei called on the BoJ to directly purchase JGBs to financial stimulus spending. Finance minister Kan today tempered Kamei's remarks saying We have to rebuild the economy, which requires spending, but we don't have the financial reserves and if we issue bonds, that will push yields up. We have to tread a very narrow path. BoJ Governor Shirakawa has recently increased his anti-deflation rhetoric but has also suggested deflation is not purely a monetary phenomenon, adding a lack of final private demand is contributing to lower prices. The central bank purchases ¥1.8 trillion if Japanese government securities every month and Kan continues to call on the central bank to take appropriate action. Additionally, Kan yesterday indicated he hopes deflation will end by the end of the year whereas current BoJ forecasts have deflation continuing through at least the second half of 2011. Data released in Japan today saw the January unemployment rate decline to 4.9%. The Nikkei 225 stock index climbed 0.49% to close at ¥10,221.84. 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 ¥119.75 level and was capped around the ¥121.30 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥132.50 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥81.85 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8266 in the over-the-counter market, up from CNY 6.8263. China is expected to continue raising its reserve ration as shorter-term bills expire. One recent study published in the U.S. suggests China will face a significant debt crisis in 2012 on account of regional and local borrowing activities. Data released in China yesterday saw February manufacturing PMI decline go 52.0 from 55.8, considerably weaker-than-expected. Revised U.S. TICS data released on Friday confirmed China is the largest holder of U.S. Treasuries. Foreign holdings of U.S. debt now total US$ 2.7 trillion in aggregate.
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