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The Japanese Yen remained firm in the Asian session today as post Bank of Japan Meeting
recovery continues. It's clear that investors are dissatisfied with the Bnak of Japan's
lack of action this year while it only planned the open-ended asset purchase next year. This
is also reflected in the Nikkei's fall of over 140 points today. Nonetheless, the profit
taking triggered a pull back in Japanese stocks and a recovery in yen which are both expected
to be limited. A key fact to consider is that Bank of Japan governor Shirakawa is going
to end his term in April. Prime minister Shinzo Abe is expected to choose a policy dove to
succeed Shirakawa and help him implement his Abenomics. If Shirakawa would be there for
another year of two, the pull back would be much deeper. But for now, it should just be
mild as markets will quickly reposition themselves into policy easing again after locking at
current profits.
The Aussie is the relatively big mover today after C-P-I data disappointed. C-P-I rose
point 2% quarter on quarter and 2.2% year on year in Q4 versus expectation of point
4% quarter on quarter and 2.4% year on year. Treasurer Wayne Swan said the C-P-I result
was "further evidence that there has been no significant broad-based increase in consumer
prices as a result of the carbon price". The Aussie weakened in the Asian session today
as the data should give the Reserve Bank of Australia room for a further rate cut if necessary.
So far, interest rate swaps are pricing in a less than 50% chance for the Reserve Bank
to cut another 25 base points to a record low of 2.75% in February. But after all, another
25 base point cut is still generally expected within the next 12 months.
In Europe: European Central Bank president Draghi said yesterday that "the darkest clouds
over the euro area subsided" on "resolute actions by euro area governments and European
institutions". Draghi hailed that "countries renewed their commitment to reforms" and noted
that the Eurozone began 2013 on a "more confident note precisely because significant progress
was made during 2012." And urged Eurozone leaders to have "continued ambition" to "fix
the structural flaws in the governance framework of the euro area." The E-C-B's Outright Monetary
Transaction bond-buying program has yet to be activated and focus has so far been on
Spain. However, European Economics Commissioner Rehn said that O-M-T could indeed pave the
way for "market financing for Ireland or indeed for Portugal" when they exit the bailout program.
In the UK, it's reported that prime minister Cameron will announce a national referendum
by 2017 on whether the country should remain in the European Union, if his party wins the
next election. Cameron will note in his speech that disillusionment with the EU is "at an
all-time high". After the next general election in 2015, Cameron will renegotiate the relationship
with the E-U and he noted there should be a simple "in-out referendum" after the new
settlement. Though, he will caution against an immediate referendum "before we have had
a chance to put the relationship right.
Looking ahead, Bank of England meeting minutes and UK job data will be the major focus in
European session and Switzerland will release Z-E-W expectations. Bank of Canada will announce
it's rate decision today and is expected to leave rates unchanged at 1%. The US will release
the house price index.