Yen Steady After BOJ, Euro Rebound Limited By French Downgrade

The Japanese yen stays soft in tight range after BoJ ended the policy meeting with an unanimous decision to leave to interest rates and asset purchases unchanged. That followed expansion of the size of the asset buying program in September and October. The asset purchase size stayed at JPY 66T while the credit lending facility was maintained at JPY 25T. It's likely that further stimulus will be announced in December, at the meeting four days after the election on December 16.

The next likely prime minister Abe, LDP leader, pushed for agressive easing from BoJ and triggered steep selloff in yen last week, but the comment was also seen as positive by markets as seen in the rally in Nikkei. However, Abe pushed the rhetoric further and urged BoJ to buy government bonds to finance punlic works spending and received some negative reactions. Some critics said that would change the independence of the central bank and would lead to irresponisble public financing.

Euro's recovery against dollar cotninues but strength is so far limited. Moody's downgraded France's soverign credit rating by one notch from AAA to AA1. The rating agency cited "deteriorating economic prospects" due to "subdued domestic and external demand" and uncertainties in fiscal outlook as reasons for the downgrade. It also maintained negative outlook on the rating on structural challenges and a "sustained loss of competitiveness." Nonetheless, Moody's still hailed France has "a strong commitment to structural reforms and fiscal consolidation."

In response, French finance minsiter Moscovici said "French debt still remains among the most liquid and safest of the eurozone" and the economy is large and diversified and the government has shown proof of its serious plan to implement structural reforms and restore public finances."

Eurozone finance ministers are meeting in Paris today to discuss the Greek fiscal issue ahead of the troika meeting tomorrow. It's reported that "lengthening maturities on Greek debt and lowering rates on the country's bailout loans are the main options being discussed." Ahead of the meeting, the Greek government approved laws to enforce automatic spending cuts or tax hike in case fiscal targets are missed are by more than 10% for 2 consecutive quarters.

The policy is viewed as an "appeasement" of its creditors. Government spokesman Simos Kedikoglou the move aimed at "fulfilling the final pledges" to investors. Regarding the meeting today, German finance minister Wolfgang Schaeuble did not expect any final decision would be made. However, there have been rumors that a tentative approval of EUR 55b would be made with the final approval on November and disbursement on December 5.

The pause RBA policymakers made in November has greatly lifted the chance of a rate cut in December. In the minutes released for the meeting, the central bank viewed the current policy rate at 3.25% as "appropriate" but signaled room for further easing. As the RBA will hold no meeting in January and February, it is more likely for a rate cut next month than another pause until March. The RBA staff downgraded GDP growth forecast for 2013 as mainly driven by a change in the profile of mining investment.

On the data front, Australia conference board leading indicator dropped -0.3% in September. Japan all industry activity index dropped -0.3% mom in September. German PPI, Swiss trade abalnce will be released in European session. US housing starts and builidg permits will be the main feature in US session.