Shock & Awe - I'm not referring to the utter devastation of Japan's earthquake and tsunami, which is Japan's worst crisis since World War Two, but rather to the Bank of Japan's response to the crisis. The BOJ has injected a record 15 trillion Yen in to the banking system and increased its asset purchases under quantitative easing by 5 trillion Yen. For the time being, the BOJ's response has put the focus back on yield differentials from repatriation flows, but Yen trade was likely remain volatile. Initial trading in the Yen last night took it to a high of 80.68 against the USD, which is about one Yen away from the record high of 79.70 that it hit in April 1995 in the aftermath of the Kobe earthquake in January of that year. Meanwhile in Europe, the Euro advance after a surprise deal to boost Europe's sovereign bailout fund, which will allow it to boost its lending capacity and also allow it to buy sovereign bonds directly from governments. The EU also agreed to cut the interest rate by 1% off of Greece's bailout and extend the duration to 7 1/2 years from 3 years. However, it did no such thing for the Irish due to Ireland refusal to increase its 12.5% corporate tax rate. This could back fire on the EU because the Irish could just default on all its loans and walk away from the Euro. Elsewhere, China's new bank loans for the month of February where below expectations which demonstrates that their combination of increases in bank reserve ratios and lending rates are working to slow down the rate of growth of the economy. In Canada, the CAD moved lower as the price of oil fell on the feeling that the Japanese disaster which has killed an estimated 10,000 people has more or less frozen the world's third-largest economy. Also weighing on the CAD, was Canada's industrial capacity which rose slightly in Q4, for the sixth consecutive quarter, but from a downwardly revised Q3.
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