Financial markets fluctuated as investors were torn between Moody's downgrades and Greek's tapping of new tranche of funding. While shares in Asian climbed higher, European bourses slipped. The market worried that credit rating of France, the Eurozone's second largest economy will eventually be cut. In the commodity sector, WTI crude oil continued to rise while Brent crude slipped. In Japan, the Bank of Japan surprisingly expanded its asset-purchase program in an attempt to bolster the subdued economy. It's expected to have little impact on the current market.
The BOJ surprisingly expanded its asset purchase program by +10 trillion yen today, sending the total fund size to around 65 trillion yen. At the same time, policymakers unanimously voted to keep the uncollateralized overnight call rate at 0.-0.1%. The move is believed to be a response to the country's economy which contracted an annualized -2.3% in 4Q11.
At the policy statement, the central bank stated that the country's economic activity has been 'more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen'. The economic outlook remained highly uncertain due to 'the prospects and outcomes of the European debt problem, the supply and demand balance of electricity and the effects of the yen's appreciation'. Headline CPI in Japan dipped -0.2% y/y in December, following a -0.5% drop a month ago. Although deflation eased mildly in December, the trend remained worrisome. Core inflation was flat in December but was slightly lower on annual basis.
A number of economic data will be released. The US retail sales probably increased +0.7% m/m in January, following a +0.1% gain a month ago. Excluding auto, retail sales might have risen +0.5% after a -0.2% drop in the prior month. The UK will report inflation data for January. Head CPI probably moderated further to +3.6% y/y in January, down from +4.2% in December. This should give the Bank of England more room to add monetary stimulus. In the Eurozone, ZEW economic sentiment is expected to have improved to -21.1 in February from -32.5 a month ago. For Germany alone, the reading probably improved to -15 from -21.6 in January.
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