Daily Report: Yen Recovers Further Ahead Of G20

Yen recovers today as traders continue to pare short positions ahead of G20 meeting. There were much confusing messages from world leaders regarding the issue of recent depreciation in yen and it's uncertain whether G20 officials would issue a strong statement regarding the topic of "currency war". Outgoing BoJ governor Shirakawa defended yesterday that BoJ is "conducting monetary policy to achieve stability in Japan's economy" and pledged that it will continue to do so. Meanwhile Shirakawa declined to comment whether Japan would buy foreign bonds. Russian finance minister Siluanov, who holds G20's rotating presidency this year, said yesterday that "G-20 countries have always held the position that currency policy should be based on market conditions" and he urged or "more specific stance" on this issue. And, he emphasized that G20 should "move from general phrases to more specific measures."

Meanwhile, it's reported that Japanese prime minister Abe is close to making a decisions on the next BoJ head, who will replace Shirakawa on March 19. Two former BoJ deputy governors are believed to be leading candidates, including Toshiro Muto and Kazumasa Iwata, while Haruhiko Kuroda is a close alternative. Meanwhile, Opposition Your Party leader Watanabe said that both Muto and Kuroda are unacceptable as both are former Ministry of Finance bureaucrats. Meanwhile, Economics minister Akira said that a former finance ministry official as BoJ governor is acceptable and won't hurt the central banks' independence.

In UK, BoE policy maker Broadbent said that there could be more targeted policies alongside quantitative easing to help ease the strains in the financial sector. He noted that doing something directly to help the banking system function better may well be desirable," if problems in finance is holding back recovery. He cited that the Funding for Lending Scheme as an "example." And he said that BoE would "continue to think about other ways of helping the financial system to improve". Though, he is optimistic on the developments and was "quite encouraged by what's happened in the last six months to financial markets", which showed that "perceived tail risk has diminished". He expects "some improvement in aggregate GDP over the next year."

Separately the UK House of Commons Public Accounts Committee said in a report that "the Treasury has not convinced us it understands either the risks it has taken on by indemnifying the Bank of England against losses on quantitative easing or the expected economic benefits." It criticized that "it has not set out its goals and intended outcomes, and it has limited management information to help it monitor progress, giving the impression of a series of expensive experiments indemnified with taxpayers' money."

On the data front, New Zealand dollar was lifted by strong retail sales number which showed 2.1% qoq growth in Q4, comparing to expectation of 1.1% qoq. Japan industrial production rose 2.4% mom in December. UK retail sales and Eurozone trade balance will be the main feature in European session. US empire statement manufacturing index, TIC capital low, industrial production and U of Michigan confidence will be released in US session.