Yen Rallies Due To Japanese Econ Minister Amari's Comments

The Japanese yen rose strongly against other currencies on Tuesday as Japanese Economics Minister Akira Amari mentioned about the disadvantages of excessive monetary easing, causing investors to close their short positions.

Versus the Japanese yen, although the greenback rose initially to 89.63 in the Asian morning, the pair tumbled to 88.62 due to the yen-supportive comments from Japanese Economics Minister Akira Amari as he said "excessive yen weakness could have negative impact on people's livelihood via import price rise." Later, the pair dropped further to 88.28 in European session due to cross buying of yen versus other currencies, however, price recovered to 88.94 in New York morning after the release of U.S. PPI and retail sales data but then retreated to 88.42 at U.S. midday.

U.S. PPI in December came in at -0.2% m/m and 1.3% y/y, lower than the forecasts of -0.1% and 1.4%. U.S. retail sales in December was released at 0.5%, better than the forecast of 0.2%.

Despite euro's initial rise to 1.3393 in Asia, active cross selling of euro versus yen knocked the pair lower to 1.3334 in European morning. Although the single currency rebounded to 1.3388 due to the solid demand of the Spanish bond auction, the steep fall in EUR/JPY sent the pair further lower to 1.3310 in New York morning. Later, price dropped further to 1.3263 in New York afternoon due to comments from Eurogroup President Jean-Claude Juncker said the exchange rate of euro was "dangerously high."

Spain sold 3.25 billion euros of 12-month and 2.51 billion euros of 18-month bills, beating the target amount of 4.5-5.5 billion euros. The average yields were 1.472% and 1.687%, lower than the previous 2.556% and 2.778% respectively.

The British pound went through a roller-coaster session on Tuesday. The pair fell initially from Asian high at 1.6094 to 1.6065 in European morning but then recovered to 1.6095 after the release of U.K. CPI data. Later, although cable fell sharply in tandem with euro to 1.6052 ahead of New York open, the pair rebounded strongly to 1.6102 at U.S. midday due to cross buying of sterling versus euro before retreating sharply.

U.K. CPI in December came in at 0.5% m/m and 2.7% y/y, same as expectation. U.K. RPI was released at 0.5% m/m and 3.1% y/y, versus the forecast of 0.5% and 3.0%.

In other news, the Bank of England Governor King said "European banking union will not solve short-run problem of euro debt crisis; ECB action has bought time, calmed markets but cannot resolve underlying euro zone problems; weak recovery n search for yield implying underpriced risk is a disturbing position." The rating agency Fitch said "Spain rating at risk of downgrade even if it manages to avoid going into rescue program."

Boston Fed President Eric Rosengren said "accommodation absolutely needed as long as missing inflation, unemployment mandates; inflation somewhat below 2% target; unemployment well above longer-run sustainable rate; there has been no upward inflation trend." Minneapolis Federal Reserve Bank President Narayana Kocherlakota said "calls for more monetary accommodation, citing low inflation, high unemployment; Fed could provide added stimulus by vowing low rates until unemployment falls to 5.5%; keeping rates low until unemployment hits 5.5% wud boost demand, inflation, employment."

Data to be released on Wednesday:
Japan Domestic CGPI, Machinery orders, Swiss Retail sales, EU CPI, U.S. CPI, Real earnings, Net LT TIC flows, Industrial production, Capacity utilisation, NAHB housing market index.