Asian Market Update: Bank of Korea stands pat at 2.00%, not concerned about inflation; Yen recovers as Fin Min Kan backtracks from negative bias, govt officials downplay role in FX


ECONOMIC DATA

- (AU) Australia AiG Dec Construction Index: 49.3 v 47.6 prior

- (JP) Japan Dec Official Reserve Assets: $1.05T v $1.07T prior (first decline since July 2009)

- (KS) Bank of Korea leaves 7-Day Repo Rate unchanged at 2.00% as expected

- (JP) Japan Nov Prelim Leading Index: 91.2 v 91.2e; Coincident Index: 95.9 v 95.8e

- (AU) Australia Dec Foreign Reserves: A$46.5B v A$45.9B prior


SPEAKERS/PRESS

- Asian equity markets are trading mixed in the final session of the week amid reluctance by the Bank of Korea to move closer to tightening, further caution in the wake of the PBoC move to drain liquidity, and more confusion by Tokyo cabinet regarding its FX policy. S&P/ASX rose 0.3%, boosted by a slight improvement in December AiG construction index. In the final hour of Tokyo trading, Nikkei225 is off session highs but still up 0.7%, as export names retreated along with the overall recovery in the Yen. Korea's Kospi and Taiwan's Taiex are both up about 0.5%, while Shanghai Composite is still weak, losing nearly 1.5% in the wake of yesterday's rate increase in PBOC's short-term bill auction. Ahead of the US jobs report on Friday, front-month S&Ps are near unchanged at 1,138.

- Highly anticipated decision from the Bank of Korea, widely believed to be among the next few central banks to follow Australia's lead in raising interest rates, saw little progress toward that end. The BoK left rates unchanged at 2.00%, noting that while the trend of recovery has been maintained, uncertainty over the path of economic growth still remains.
Moreover, while conceding that the current rate presents a significant gap from normal levels, Governor Lee said he did not see clear signs of adverse effect from prolonged low interest rates, suggesting that the worrisome housing appreciation had eased. Moreover, both Gov Lee and BOK member Ahn showed greater concern over the strength of KRW, which could make the central bank more reluctant to raise rates in the near term. Finally, the central bank warned that inflation is likely to remain stable because of weak demand - a far cry from concern over rising consumer inflation expressed in the prior month. Central bankers did remain upbeat on growth, noting that exports have been strong and that Q1 GDP will outperform that of Q4.

- Japan's new finance minister appears to have fallen into a similar trap as his predecessor, whose "strong yen" support in September sparked a Nikkei225 selloff. After Fin Min Kan expressed support for the weak Yen in the prior session, Prime Minister Hatoyama said there was no need to comment on FX moves, while govt spokesman Hirano noted it was generally not desirable for the govt to make remarks about FX markets. Kan himself backtracked as well, suggesting that FX rates should be set by the market, and that the govt will only intervene in extreme cases. Kan had also retreated from yesterday's warning that fiscal discipline in the current year would be a challenge, reaffirming commitment to responsible govt spending. Meanwhile, Admin Reform Min Sengoku suggested that the Tax commission should consider a personal consumption tax hike, and the usually outspoken Banking Min Kamei reiterated that strong currency was detrimental to the economy.


EQUITIES

- In individual shares, Japan Airlines continued to trade lower as the govt reaffirmed its support of the bankruptcy option.
According to Japanese press, Enterprise Turnaround Initiative was said to request that creditors allowed for ¥350B in debt waivers and debt-for-equity swaps as part of the bankruptcy option. Aeon rose about 10% after narrowing its 9-month loss in the prior session. Also in the Tokyo retail space, Fast Retailing reported better than expected results, posting Q1 Net ¥34.9B v ¥33Be, Op Profit ¥61B v ¥53Be, Rev ¥263B v ¥252Be. In other notable gainers, Fuji Heavy rose nearly 4% after Goldman Sachs raised its price target to ¥480 from ¥450, and NTT DoCoMo was marginally higher after reporting 138.8K net new subscribers in Dec v 55.6K m/m. Outside Tokyo, China's steelmaker Baosteel announced a price increase for flat-rolled steel by 5% in Feb. In Taiwan tech, Chi Mei said it secured a contract for over half of Samsung's LED backlit TV's, planning to ship 500K units in Q1.


CURRENCIES/FIXED INCOME/COMMODITIES

- In currencies, European majors traded sideways against the greenback ahead of Friday's NFP, with EUR/USD hugging the 1.43 handle and GBP/USD bouncing around 1.5950. Commodity FX were marginally weaker amid selling in crude and gold - AUD/USD retreated to 0.9120 and NZD/USD tested the downside of 0.73. Japanese Yen was decidedly firmer as cabinet officials backed away from Kan's endorsement of the weak Yen in the prior session. USD/JPY fell back below 93.20, EUR/JPY backed away from 134.00, and AUD/JPY retreated below 85.20 after rising to 86.00 early in the day.

- Most commodities are weaker on factors including, the stronger US dollar, monetary tightening concerns in China and profit-taking ahead of the later today release of the US employment report. Crude oil prices are lower and trading below $82.50/bbl, while spot gold has lost more than 0.50% and is trading below $1,125/oz. In other commodities, Shanghai Copper prices are declining, tracking the losses in Chinese equities amid concerns about the policy outlook in China. Later on today, the Shanghai Futures Exchange will release its weekly inventories data.