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Prospects Daily: Yen weakens as Japan launches aggressive monetary easing, US jobless claims rise, Russia inflation eases

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Financial Markets…The yen depreciated the most in 17 months versus the dollar on Thursday, sliding 2.6% to around 95.45, as the Bank of Japan unveiled an aggressive monetary easing program that will put pressure on the currency. The benchmark Nikkei 225 Stock Average rose 2.2% and yields on 10-year Japanese government bonds fell to a record low of 0.425%.

Spanish government bonds rallied, pushing yields on the country’s 2-year note to a 2 1/2 –year low of 2.07%, after Span’s Treasury sold more debt than planned at an auction, highlighting strong demand for higher-yielding euro-zone bonds. The nation sold €4.3 billion of Treasury securities maturing between 2016 and 2021, surpassing the maximum target volume of €4 billion.

The Egyptian government said today it expects to finalize an agreement with the International Monetary Fund (IMF) on a $4.8 billion loans within two weeks. The country, facing about 138 billion pounds of domestic debt maturing in the second quarter, is planning to issue 79.8 billion pounds of 3- and 6-month government securities as local borrowing costs rise. The yield on 1-year notes climbed 33 basis points to 14.79%, the highest level since September, at an auction today.

High-income Economies
Japan’s central bank announced aggressive monetary easing aimed at reversing 15 years of deflation. The Bank of Japan shifted its operating target from the overnight call rate to the monetary base which it aims to double to Y270tn in the next two years by purchasing mostly longer dated Japanese government bonds (JGBs) and private risk assets. JGB holdings are expected to rise by about Y50tn a year, roughly twice the current pace of buying. The central bank’s balance sheet is estimated to expand by about 1% of GDP every month, which is almost double the rate at which the US Fed is currently increasing its balance sheet.

US initial jobless claims rose to their highest levels in 4 months, offsetting recent gains. Claims rose for the third consecutive week to a seasonally adjusted 385,000 in the week ended March 30th, an increase of 28,000 from the previous week. The less volatile four-week moving average climbed to 354,250, an increase of 11,250. Labor market developments are tied to the Federal Reserve’s current monetary policy stance of maintaining its monthly $85 billion purchases of mortgage and Treasury bonds until the outlook of the labor market “improves substantially in a context of price stability”.

Developing Economies
Europe and Central Asia: Russia’s inflation slowed in March to 7.0% (y/y), down from 7.3% (y/y) in the previous month. Inflation, however, remains above the central bank’s target band of 5-6%.

Latin America and the Caribbean: Jamaican growth further decelerated in the 2012Q4 as it contracted by 0.9% (y/y), further down from 0.2% (y/y) contraction in 2012Q3. Growth for the entire year was negative at 0.3%, down from 1.3 in 2011, dragged down by slowdown in mining, manufacturing and construction.

Middle East and North Africa: Tunisia’s inflation spiked to 6.6% in March, from 5.8% in February and 5.9% at end-2012. The Tunisian government last month pushed ahead with budget reforms, including subsidy reductions and tax increases. Authorities raised fuel prices by nearly 7%, the second hike in the past six months.

Sub-Saharan Africa:
Botswana’s economy expanded at the same rate in 2012Q4 (3.2% y/y) as in the previous quarter. Growth for the entire year came in at 3.7%, down from 6.1% in 2011 as rising investment failed to fully offset a slowdown in consumption and net exports.

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