• Asian Stocks Advance On Summit Announcement
• JPY Hits 9-Day High Vs. USD
• Investors Eye Japan Data For QE Clues

The yen soared Friday morning, as day one of the EU summit brought news that the monetary union would be injecting €120bn injection of liquidity into the beleaguered banking system and making significant changes to Europe’s bailout system.

The decision came as surprise to many traders and top forex brokers alike, with expectation ahead of the meeting of top European minds decidedly downbeat. On hearing the news this morning, after what appeared to be a late night cave-in on behalf of German Chancellor Angela Merkel, European markets rallied, with futures up across the board. While the yen responded positively to the prospect of more financial freedom across Europe.

“We took a good decision on growth,” said (muttered?) German Chancellor Angela Merkel as she left the meeting. After many hours of arguing, the leaders agreed that the European Stability Mechanism (ESM) would be permitted to lend direct to troubled banks, without increasing a country’s budget deficit. Despite appearing to have backed down on her insistence that any recapitalisation funds should be passed through governments, the German Chancellor maintained that any aid must be combined with demands for reform in the financial sector of the recipient.

The euro jumped by 1.1 percent to $1.2581 after the euro zone affirmed its decision to supervise lending centrally and stimulate growth through cash injections.

JPY Makes Gains On Growth Outlook

The yen, meanwhile, soared as a result of increased risk aversion from investors. The yen is generally viewed as a safe haven currency as a result of Japan’s low interest rate, but the impact of the liquidity injection is also expected to have benefitted the Asian currency as a result of expected growth in the monetary region. The yen advanced to a 2-week high of 122.92 against the pound on charts, staying above the key 123.0 mark for the second consecutive session after the summit news emerged Friday morning.

The JPY also soared to a 9-day high of 79.15 against the dollar on live forex charts; its second day of gains in a row.

Benchmarks in Japan, South Korea and Australia all reversed early falls to move higher. Japan's Nikkei 225 index rose 1.1 percent to 8,972.25. South Korea's Kospi gained 1.1 percent to 1,838.83 and Australia's S&P/ASX 200 index added 1.3 percent to 4,098. Hong Kong's Hang Seng jumped 1.9 percent to 19,387.14.

While the first day of the summit has yielded more surprises than iunvestors may have been expecting, the outlook from many speculators remains cautious. “These steps are the obvious ones to take to try and restore some confidence in the market in the short term”, commented Gary Jenkins of Swordfish Research. “Alone they do not solve the underlying problems but they might buy a bit of time which is probably about the best they can do right now.

“Obviously the bailout funds as they exist are not large enough to fund the likes of Italy over the medium term and the challenge remains to encourage the private sector to invest alongside them and on that point they have at least removed some key obstacles. It will be interesting to see if they can make any progress towards a proper fiscal union on day two.”

All Eyes On Japan Data

While Asian stocks continue to ascend, investor eyes remain fixed on the East today with a whole host of economic data due for release. Manufacturing PMI, household spending, May CPI and employment figures will all emerge Friday from 2330 GMT (1230BST), with investors keen to gauge the health of the Asian economy and the likelihood that any further QE measures will be implemented.

Ashraf Laidi (pictured) of City Index/Fx Solutions commented: "Japan is in focus with unemployment and CPI at 2330 GMT. The May national CPI, ex-food and energy is expected down 0.6 percent y/y. More severe deflation combined with soft employment figures could spark more speculation about QE.

“June Tokyo CPI numbers will also add a more real-time input to the inflation picture”, he added.

Preliminary estimates currently suggest that industrial production figures fell 3.1 percent in May, representing the biggest decline since March 2011 and a significant increase on the 2.8 percent decline of the previous month.

Sarah Cox, Markets Writer. ForexSpace.com