Asian Market Update: Moody's Downgrade Takes Toll on Toyota Ahead of Reported Loss; RBA Cuts GDP, Inflation Guidance in Quarterly Statement; Japanese Yen Recovers Some Ground After Large Losses

- Equities in Tokyo spiked well over 2% early, tracking gains in the US markets and a 1-month low in Japanese Yen. However, that rally fizzled coming out of the midday break on the heels of a Moody's downgrade of Toyota to Aa1 from Aaa. The report coming out just ahead of the company's earnings attributed the action to a poor state of profitability during difficult market conditions which could also delay the recovery. Shares of Toyota, trading up 3% ahead of the cut, lost 2%. Likewise, large scale manufacturer Toray pared early gains following 9-month results that came well short of y/y levels and cut FY operating profit estimates by 49%. Shares still traded up 1.5%, a point off session's best levels. Among other notable gainers, Asahi Breweries traded up 3% after 9-month earnings released after close of the prior session topped y/y levels across the board. Also reporting was Japan Airlines, posting a 9-month Net loss ¥1.92B v profit ¥20.5B in the prior year. The company also slashed its guidance for the full year to net loss of ¥34B v profit ¥4.0Be and sales of ¥1.98T v ¥2.07Te. BOJ Governor Shirakawa addressed further economic worsening in front of the lower house of Parliament, noting that the largest risk to financial institutions was protracted decline in equities but also warning that excessive equity buying by the BOJ would hurt the Yen credibility. The latest statement reveals growing comfort with the recent JPY strength just as it briefly fell to a 1-month low against the dollar.

- Sydney's S&P/ASX finished the week on a firm footing with a 1.2% session gain, all in spite of downbeat view from the RBA and more uncertainty regarding the prospects of the fiscal stimulus. In its Quarterly Monetary Policy Statement, the RBA lowered 2009 inflation forecast to 3% from 3.5% and cut Q2 2009 GDP forecast to 0.25% from 1.5%, while also doubting any economic growth for the most recent quarter. RBA also lowered its overall non farm 2009 GDP est. to zero from 1% and forecasted GDP of 2.5% in 2010 and 3.25% in 2011. In the near term, RBA saw high likelihood of continued rise in unemployment, decline in business investment sentiment, and softening CPI, but also a recovery in residential construction and improvement in credit markets. Aussie stimulus plan sank deeper in political quicksand, as PM Rudd blamed the opposition for its lack of support, and Treasurer Swan said that job market recovery depends on its speedy passage. In notable Aussie shares, News Corp reported after-hours in the US, falling short of $0.19 estimates at $0.12. National Australia Bank also said economic conditions are challenging and outlook is not improving, expressing pessimism that it can pass on a full future RBA cut. In miners, BHP was up 2.4% and Rio Tinto traded flat, while Woodside Petroleum was slightly softer by 1.5%.

- Elsewhere in Asia, S Korea's Kospi and China's Shenzhen were the strongest regional performers on the day, picking up 2.5% and 3.1% respectively. S Korea's incoming Finance Minister Yoon urged more aggressive policy measure to spur recovery in domestic demand and growth in the job sector. Additionally, he confirmed that the government may look to revise its 3% GDP growth targets after Bank of Korea and IMF downgraded its estimates. In China, PBOC Deputy Gov Ning had reportedly urged the government to throw more of its weight in support of LBO's as a way to stimulate the economy. Also, the PBOC was rumored to be considering allowing banks to offer lower rates by widening the allowable discount to benchmark rates to 20%.

- In currencies, European majors were mixed on the heels of the met expectations for rate decisions from BOE and ECB. GBP/USD rallied to February's best levels of 1.47, EUR/USD traded around unchanged levels just below 1.28, and Swiss franc was modestly lower reaching 1.1730's against USD. Commodity currencies traded subdued in Asian hours, with NZD/USD contained by intraday support turned resistance at 0.5145, AUD/USD maintaining technical uptrend with a rebound above 0.65, and USD/CAD oscillating in a relatively wide intraday range of 1.2230-1.2370. Japanese Yen retraced its extreme losses in mid US hours with a modest rally, as USD/JPY fell below 0.91 after taking out 0.92, EUR/JPY selling down to 116, and GBP/JPY dropping over two big figures from its peak to 133.
Also, in a surprise move, Peru Central Bank cut interest rates by 25bps to 6.25%.

- Spot gold was lower on profit taking ahead of the US non-farms payrolls report and after the metal gained more than $11 during the NY session. As demand for physical gold continues to rise, the SPDR Gold Trust ETF's holdings of bullion rose to another record of 867.2 tons as of Feb 5 vs. 859.5 tons on Feb 4. On a weekly basis, gold looks set to decline for the first time in 3 weeks. Crude oil is declining in Asia and trading above $40/bbl. Overall oil prices are set to end the week 2% lower, in what has so far been the least volatile week for prices in more than 5 months.