Yen Resuming Decline after CPI Data

The Japanese yen weakens today and looks set to extend recent decline against most major currencies. Indeed, GBP/JPY and AUD/JPY have taken out recent high already. BoJ Governor Shirakawa pledged again that the bank will "continue with monetary easing until consumer inflation of 1 percent is in sight". And he also emphasized that spike in energy prices alone is not enough to trigger policy reversal. Inflation data from Japan released today saw national CPI core unchanged at -0.1% yoy in January. The Japanese yen was sold off since BoJ announced the inflation target of 1% last month and paved the way for further quantitative easing. It's believed that BoJ would finally be narrow that difference between size of QE program with Fed and other central banks. Other data from Japan saw household spending dropped -2.3% yoy in January, monetary base rose 11.3% yoy in February. Unemployment rate was unchanged at 4.6% in January.

European Union President Van Rompuy said after the EU summit that there will be an "acceleration" in providing capital for the permanent bailout fund ESM. That could start with payment of two tranches in 2012 and complete the capitalization in 2015, a year ahead of schedule. Luxembourg prime minister Juncker sais that the IMF meeting on March 13 will "only allow its participation to increase if the euro group countries build the firewalls a little higher than they are now". That is, EU should boost the recuse fund before the IMF meeting to win over an increase in IMF resources.

IMF said in a report that risks to world economy remain "squarely to the downside" even though probability of steep slowndown eased. IMS said in a report that key risk remains that policies do not shift Europe toward a 'good equilibrium' and fail to break adverse feedback loops between real, fiscal, and financial sectors." "Advanced economies are experiencing weak and bumpy growth, reflecting both the legacies from the crisis and spillovers from Europe". World economic growth is expected to slow from 2011's 3.8% to 3.3% in 2012.

Looking ahead, main focus today will be on UK PMI constrcution, Eurozone PPI and Canadian GDP.