The talk coming from Brussels is that the PSI deal is not acceptable in its current form and Luxembourg PM Juncker went as far to say that the Greek program is off track. Nevertheless, EU finance ministers have stressed that Greece's future is within the euro and EU Commissioner for Economic Affairs Rehn believes that a PSI deal will be forthcoming in the next few days. The stumbling block appears to be the coupon rate, with EU officials looking for an average rate of 4% for 30yr bonds.
The big event of the day in Asia is a BOJ meeting and the associated press conference, where the bank is expected to keep the overnight call rate unchanged. Nevertheless, the Outlook for Economic Activity and Prices is going to be released following the meeting and we expect a downward revision to both GDP and inflation forecasts for FY2011 and FY2012, but they are unlikely to be significant enough to prompt any more policy action.
Themes:
Germany is open to letting the two Eurozone rescue funds run in parallel, with a combined firepower of EUR 750 billion. This would represent a massive shift Berlin's policy, given that they have been stanchly against boosting the ESM or EFSF. However, in return German Chancellor Merkel reportedly wants Eurozone officials to sign up to rules aiming for more fiscal reform.
EU finance minister broke from a meeting in Brussels to state that the PSI deal had been rejected, but they expect a deal to be made in the next few days.
The BOJ is expected to keep the target cash rate at 0.10% during their meeting today.
Most equity markets in Asia are still closed due to New Year celebrations.
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