Yen Recovers on Risk Aversion as China Lowered GDP Target

The Japanese yen recovers broadly on profit taking and risk aversion today. Meanwhile, dollar is also mildly firmer against other major currencies. Asian equities are broadly lower today as China lowered GDP target for 2012. At the annual meeting of the National People's Congress in Beijing, China's Premier Wen Jiabao announced the country's economic growth target is reduced to 7.5% this year while inflation target will stay at 4%. The Chinese government also reiterated to maintain a 'proactive' fiscal policy and a 'prudent' monetary policy. This is the first time that China forecasts its growth at below 8% since 2005. While this may disappoint some investors, the goal is a signal that the government policy has shifted the composition of growth to consumption from exports and investment.

Meanwhile, there are fresh concerns on Greece PSI participation A German weekly Magazine Der Spiegel reported over the week end that an ECB source said the bank expects participation rate of Greece's PSI debt swap deal would be too low. And, the bank expects collective-action clauses to be activated. The board of the Institute of International Finance strongly endorsed the PSI deal but said the decision to participate "lies exclusively with individual investors". The window will close this weekend. And it should be noted that, successful PSI is a important condition for getting the second EU bailout. Also, CAC activation will likely be deemed a credit event by the relevant ISDA commission and trigger CDS payments.

At the EU summit held over the weekend, finance ministers agreed to pay capital into the ESM by 2015, a year ahead of schedule. It was also revealed that around half of the 130B euro funding for Greece would be delayed until finance ministers received a 'detailed assessment' by the EU/IMF of the implementation of 38 specific reform measures by next week.

On the data front, Australia TD securities inflation rose 0.1% mom in February. Swiss retail sales, Eurozone PMI services, retial sales and Sentix investor confidence will be released in European session. But main focus will be on UK PMI services which is expected to drop back to 54.9 in February. In US, ISM non-manufacturing is expected to drop slightly to 56.1 in February.