Asian Market Update: Bank of Japan on hold at 0.1%, adds ¥10T in fixed rate funding operation; World Bank raises estimates for China 2010 GDP, CPI

Asian equity markets are trading firmly higher, tracking investor optimism in the final hour of the US session following renewed commitment to accommodative monetary policy from the Fed. Sydney's S&P/ASX gained 1.0%, while the Kospi and the Taiex were up over 1.3%. Nikkei225 hit a 2-month high above 10,800, gaining 1%, before pulling back slightly following a rate decision from the BOJ accompanied by modest expansion of monetary accommodation. Ahead of Wednesday US trading, front-month S&Ps are up a marginal 0.1%.


ECONOMIC DATA

- (NZ) NEW ZEALAND Q1 WESTPAC CONSUMER CONFIDENCE: 114.7 V 116.9 PRIOR 

- (KS) South Korea Feb Dept Store Sales y/y: 15.2% v 4.8% y/y; Discount store sales: 30.8% v -13.4% prior 

- (AU) AUSTRALIA JAN WESTPAC LEADING INDEX M/M: 0.2% V 0.6% PRIOR (8-month low) 

- (JP) JAPAN JAN TERTIARY INDUSTRY INDEX M/M: 2.9% V 1.3%E (multi-year high) 

- (AU) AUSTRALIA Q4 DWELLING STARTS Q/Q: 15.1% V 9.4% PRIOR (8-year high)

- (HK) HKMA leaves base rate unchanged at 0.5% (as expected)

- (JP) BOJ LEAVES RATES UNCHANGED AT 0.10% AS EXPECTED; Expands 3-month 0.1% funding operation to ¥20T from ¥10T

- (KS) SOUTH KOREA FEB UNEMPLOYMENT RATE: 4.4% V 4.8% PRIOR 


SPEAKERS/PRESS

- In a 5-2 split decision, Bank of Japan yielded to political pressure with additional quantitative easing measures, targeting long-term interest rates by expanding its 0.1% funding operation to ¥20T from ¥10T. The BOJ was also unanimous in its decision to leave interest rates unchanged at 0.1% as well as maintain its economic assessment. Accompanying statement from the central bank was a near-repeat, pointing to moderating trend in the pace of deflation and improving financial environment, while employment conditions were said to remain severe. In terms of the BOJ outlook for inflation, the policy committee noted that it may actually print higher than expected going forward because of higher commodity prices. As such, the additional ¥10T funding operation was perceived as a symbolic response to govt pressure rather than a concerted effort to address deflation through QE steps, resulting in knee-jerk Yen gain.

- Over in China, the commerce ministry noted that focus on Yuan will not improve China-US trade concerns. Comments follow prior session's report the US Senate would threaten penalties on China if it does not revalue the Yuan, pressuring the US Treasury to take further action. Recall that the Treasury will publish a semi-annual currency report on April 15 that could see China branded as "manipulator", even though today Sec Geithner suggested the Treasury does not believe that China is deserving of the status. Separately, State Council adviser Xia Bin said China will not dump its holdings of US debt amid the rise in trade and currency friction, but also noted that the yuan valuation should not be blamed for trade imbalances.

- World Bank upgraded its view on China performance in the current year, boosting GDP outlook to 9.5% from 8.7% and CPI view to 3.7% from 2.0%. Note that China's official 2010 estimates are 8% for GDP and 3% for CPI. Additionally, World Bank recommended that stronger yuan could limit inflation expectations, even though it does not believe that China's inflation will be too high. Regarding housing, World Bank also warned that China risks a property bubble and would require tighter macroeconomic policy in 2010. Exports were forecasted to remain strong in the short-term, but prospects for the second-half of the year are not clear.

- In Australia, RBA Deputy Governor Debelle spoke at a MFAA panel, forecasting interest rates rising higher while also acknowledging some tightening in mortgage lending standards. Debelle further noted that housing prices are just one of the economic indicators monitored by the central bank, just as Australia's Q4 dwelling starts registered an 8-yr high rate of q/q growth.


EQUITIES

- In individual shares, Nikken News reported Astellas Pharma may raise its bid for OSI Pharmaceuticals before March 31 deadline. Separately, Elpida rejected Nikkei News report that its FY op profit could reach ¥20B. In Sydney, retailer David Jones reported 1H Net $101M v A$91.2M y/y on Rev A$1.1B v A$1.1B y/y, reaffirmed its FY forecast of 5-10% PAT growth, and boosted its interim dividend to A$0.12 v A$0.11 prior. Among the losers, AWB trimmed its FY profit before taxes estimate to A$85-110M from A$115-150M, losing over 10% on the day. In Taiwan tech, TSM said Q1 sales guidance would not be impacted by recent earthquake.


CURRENCIES/FIXED INCOME/COMMODITIES

- In FX, the dollar continued to weaken against EUR, with the single currency pushing up above 1.3780, setting sights on 1.38 resistance. GBP/USD gains were contained by contrast ahead of the BOE meeting minutes. In commodity FX, AUD/USD retreated after briefly testing 0.92 on dovish FOMC comments, while the Kiwi dollar outperformed - NZD/USD rose nearly 40 pips above 0.7130 and AUD/NZD saw two-week lows below 1.29. Japanese Yen firmed after the BOJ decision to add ¥10T in fixed rate funding operation, but reversed those gains near psychological 90.00 handle, falling as low as 90.60 vs USD.

- Most commodities are gaining on the advances in Asian equities and the weakness in the US dollar following the US Federal Reserve's reiteration that rates would stay "exceptionally low" for an "extended period." Crude oil prices are higher and trading above $82/bbl. Following yesterday's US equity close, API disclosed that weekly crude and gasoline inventories were lower than expected (API PETROLEUM INVENTORIES: CRUDE: +403K V +500KE; GASOLINE: -3.7M V +200KE). Later today, the US Department of Energy will release its weekly inventories data. Ahead of today's OPEC decision, the cartel's President was quoted as saying there was no need for OPEC to change its output. Also yesterday, the Saudi Arabian Oil Minister Al-Naimi said he saw no need to change production this year. 

- Spot Gold prices are little changed and holding above $1,125/oz, supported by the earlier FOMC interest rate decision. In terms of the technical outlook for gold, one dealer sees the metal trading between $1,100-1,140/oz. Also, some believe that gold needs to move above $1,150/oz in order to sustain its recent momentum, while others expect profit-taking to set in near $1,130. Copper prices are higher on the session, supported by the gains in equities and weaker dollar. 

- In commodity-related press news, the London Independent reported that China's steel association (CISA) is opposed to paying 80-90% more for its iron ore supplies. According to the report, Chinese steel mills favor an iron ore price increase of about 20% y/y. Reports from last week suggested that the large global iron ore miners put their price negotiations with companies in China on hold do to the inability of the parties to reach an agreement on pricing. In last year's iron ore price negotiations, price disagreements led to the collapse of the talks. In other commodities news, a Japanese press report disclosed that steelmakers in Japan agreed to pay $200/ton for their high-grade coking coal from global miners. The settlement terms correspond with an approximately 55% y/y price increase, which was in line with prior market speculation.