Japanese Stocks Reach 5½-Year Highs, Fed Encourages Investors

Japanese Stocks reached new 5½-year highs after the Bank of Japan confirmed its decision to increase the amount of money it is putting in to the Japanese economy from JPY 60 to 70 trillion per year. It also vowed to leave its other policies unchanged. The Bank said it would continue with easing measures as long as necessary to achieve its target of 2% inflation pledged in April.

Traders await the outcome of the Federal Reserve minutes today given by Ben Bernanke and are suspicious that the US intends to curtail its easing measures. The Central Bank seems to be encouraging the belief that the program will continue. Share prices in the US closed at their highest ever levels.

Stocks
The Nikkei 225 rebounded and made 1.6 percent gains to reach its highest point since Dec 2007, the Hang Seng lost 0.6 percent and the Australian ASX/200 closed 0.3 percent down. In Europe stocks were mixed while investors remain cautious ahead of a EU meeting. In European morning session the EURO STOXX 50 crept up 0.05 percent, the French CAC 40 was down 0.06 percent and the German DAX was down 0.11 percent. The US stock prices closed higher yesterday after hints from the Fed that the stimulus measures would continue for the time being. The DJIA closed up 0.34 percent, the S&P 500 was up 0.17 percent and the Nasdaq gained 0.16 percent.

Forex
The USD was mixed in the Asian session with the greenback down against the EUR and up against the JPY. The USD/JPY pair gained 0.29 percent and the EUR/USD gained 0.25 percent. Trading volume remains low ahead of the Fed Reserve testimony. The only other pair to stand out was the commodity linked AUD, which was down 0.28 percent as the declining commodity market affected the AUD.

Commodities
Commodities were mixed with Crude declining after the supply data release from API. Gold was 0.01 percent down, Silver was up 0.09 percent in limited gains.

What To Watch
More data from the UK in the early part of the session to be watched. The British pound has had the worst year of any currency so far this year and more bad data from the UK will continue the GBPs’ declines. Then German 10-yr debt auction to watch followed by Canadian retail release and of course the key testimony by Fed Chairman Bernanke in the US session all make this a day with lots of volatility.