Yen Steady As BoJ On Hold, GDP Unexpected Contracted In Q4

The Japanese yen remains steady in range against dollar and euro in the Asian session today. BoJ left rates unchanged at 0-0.1% on a unanimous vote as was widely expected. The stimulus programs were also left unchanged. The central bank noted that "Japan's economy appear to have stopped weakening" , the pace of export decline has slowed as "international investors' risk aversion has abated" and the global economy has shown "signs of picking up". The Japanese economy is expected to "level off more of less for the time being". CPI is expected to turn negative due to reversal of energy prices but would then be back around 0% again. BoJ pledged to "pursue aggressive monetary easing" but emphasized that it aims to "achieve price stability on a sustainable basis", that is, achieving it's 2% inflation target at the earliest possible time.

In the Asian session today, Japan's GDP unexpectedly contracted -0.1% qoq in Q4, versus consensus expectation of 0.1% qoq growth. That's the third straight quarter of contraction even though it improved from Q3's -1.0% qoq drop. Japan is still in a mild recession and the -0.6% qoq fall in deflator indicates that Japan is still staying in deflation. The data should strength the case for prime minister Abe to push for more monetary stimulus to end deflation, and boost recovery.

The Japanese yen is steady so far as traders are eyeing the G20 meeting. The key focus would be whether the yen's recent depreciation, triggered by prime minister Abe's rhetorics and push for more aggressive BoJ easing would be targeted. Markets were confused by the G7 statement and subsequent comments from officials. There's some speculation that emerging countries could complain about th yen. However, Russian Deputy Finance Minister Sergei Storchak said yesterday that the yen is definitely over-valued, and "there are no signs" of intervention.

In the US, James B. Bullard chief executive officer and 12th president of the Federal Reserve Bank of St. Louis, said that 2013 would be "characterized by less macroeconomic uncertainty that bodes well for US macroeconomic prospects". The Euro will likely "see either a stabilization or some recovery" while emerging market economics are "expected to fare better". From a domestic perspective, last year's US elections cleared up some uncertainties and partially resolved the fiscal concerns. However, Bullard said: “I’d want to see through the spring, at least, how the economy develops" before suggesting a reduction of the size of the open-ended QE3.

The outlook is that, GDP data from the eurozone will be the major focus today. Eurozone GDP is expected to contract -0.4% qoq in Q4, following -0.1% qoq contraction in prior quarter. Germany, French and Italian GDP are expected to contract in Q4 too. Jobless claims will be the main feature in US session.