Yen Soft, Euro Firm In Steady Markets

Yen remains soft against other major currencies while Euro remains firm in relatively steady markets in Asia today. The Japanese government raised 2013/14 growth forecast to 2.5%, comparing to August projection of 1.7%, as the country emerge from recession. CPI growth is expected to be at 0.5%. Finance minister Aso predicted that there will be JPY 43.1T in tax revenue in 2013/14. Total spending is expected to be at JPY 92.6T while there would be JPY 42.85T raised from bond issues. That would be the first time in four years that tax income would exceed new debts. Aso said that for three years the "bond issuance exceeding tax revenue is abnormal," and it's a "big deal" it's turned around. However, some economists are skeptical on whether tax revenue could fall short of the estimate.

In the World Economic Forum annual meeting in Switzerland, Japanese economy minister Akira Amari defended that Japan is "absolutely not deviating from global standards." He emphasized that "the Abe administration attaches its highest priority to exiting from prolonged deflation partly accompanied by the appreciation of the yen, and revitalizing the economy." And, he noted that "many nations said they welcome and support Japan's new measures". According to Amari, misunderstandings were only "held by a small group of people have been cleared up."

Also in the WEF meeting, ECB Governing Council member Luc Coene said that "the ideal situation would be for the OMT never to be used." He noted that the OMT is like a "nuclear deterrent" and "whenever you use it, that will raise new questions and new issues." And he noted that ECB itself cannot solve the underlying problems in the Eurozone and "governments can make the adjustments that are needed to make the economy grow again." He emphasized that "the next move won't be from the ECB." And, "the way to generate growth now is by strengthening confidence."

Speaking in the same meeting, Swiss finance minister Eveline Widmer-Schlumpf said that "the franc is still very strong" and more depreciation is needed. But she noted that the prospects for Swiss Franc are "a question of how the euro develops". Economy minister Johann Schneider-Ammann also said it's "too strong" and hoped "it will devalue further". The current BoC governor, next BoE governor, Mark Carney said that "within the framework of flexible inflation targeting that exists in most of the developed economies, there remains considerable flexibility." He noted that "there continue to be monetary policy options in all the major economies." He said before that GDP targeting could be an even more powerful tool .

On the data front, Japan corporate service price index dropped -0.4% yoy in December. Eurozone M3 money supply is expected to rise to 3.9% yoy in December. Durable goods orders from US are the main focus today and is expected to show 1.9% growth. Ex-transport orders are expected to rise 0.8%. Meanwhile, pending home sales are expected to rise 0.5% mom in December.

Latest CFTC data showed Euro net long jumped to 21.3k contracts on January 22, comparing with 7.3k contracts a week ago. Note again that Euro positions were in net short for all of 2012, except last week in December, and hit a low of 214k net shorts back in June. We might see more net longs accumulated by speculators in early part of 2013. Sterling net longs dropped again to 17.9k comparing 28.3 the prior week. Yen net shorts dropped for the sixth week to 64k contracts, comparing to 94.4k back in December. Canadian dollar net longs dropped sharply to 58.0k contracts comparing to 68.7k the prior week and might drop further.