However, the BOE also states that the banking system has been helped by better funding conditions. The bank said, "the economic downturn is still perceived by market participants as the highest risk to financial stability" and that only 15% of banks surveyed say that they are "very confident" in the banking system in the coming three years. The BOE also warned that banks should reduce their dependence on external credit rating agencies and to use their own risk models and due diligence.

22:51 EST Japan Fin Min Yosano blamed the CPI fall on weak demand, as well as declines in output. Yosano said that, "We must carefully watch price movements and manage policy to prevent Japan's economy from collapsing or persistent price falls that would hold back growth." But the chief Cabinet Office economist Jun Saito warned that Japan deflation could derail an economic recovery, adding, "An increase in deflationary expectations will raise real interest rates and that will restrain business investment."

21:51 EST S.Korea May current account surplus narrowed to $3.1 bln SA from $6.5 bln in April and March record $6.6 bln. It came as merchandise trade surplus narrowed to $5.2 bln SA from record $7.2 bln, but still trailing only the two previous months. Exports pulled back -5.6% m/m SA in May after +3.9% m/m SA in April, continuing month-to-month volatility, but consistent with recent firming, +18% SA from January low, though still weak at -22.6% y/y following collapse in global demand at the end of last year. The deficit in services widened to -$2.0 bln SA, while the income surplus narrowed to $179 mln SA and transfers slipped to -$210 mln. Current account has swung back to surplus after deficit of -$6.4 bln in 2008, the first annual deficit since 1997, and appears on track to meet the upward-revised government forecast for annual surplus of $25 bln in 2009.

21:30 EST Fed custody holdings hit new record highs the week ending June 24th with treasuries and agency debt held on behalf of foreign official and international accounts rising $2.177 bln in the latest week to $2.754 tln. Average treasury holdings are at $2.764 tln compared to $1.353 tln a year ago while agency holdings are at $807 bln compared to $969 bln a year ago. Agency holdings have declined as low as $806 bln the week of April 22nd which was the lowest level since the week of November 21st 2007.

21:24 EST ECB Stark said that the ECB cannot keep up stimulus indefinitely and adds that it is important that the financial sector does not become dependent on ECB long-term financing. He says that the ECB will unwind measures and absorb liquidity when macroeconomic conditions improve but that the ECB measures have had a positive, stabilizing effect on the economy.While stating that the global correction process will be painful, he notes that recent confidence indicators suggest the pace of the global and euro area decline has slowed somewhat. He states that Euro zone governments must reject further fiscal stimulus, and must start to reduce deficits in 2010.

20:23 EST Japan May national core CPI declined 0.3 m/m SA to slip to -1.1% y/y from -0.1% y/y in Apr, surpassing the -1.0% y/y in 2001 as steepest decline in core CPI in over 3 decades, off from 10-year high of +2.4% y/y last Jul-Aug.June Tokyo core CPI declined a further 0.3% m/m SA, to -1.3% y/y from -0.7%, its sharpest drop in 7 years, off from 10-year high of +1.7% y/y last Sep. The data highlight the absence of inflation pressure in the face of the economic recession, together with the base effect that for the next several quarters will translate into y/y declines in comparison with the uptick in energy prices a year earlier (core CPI calculations in Japan exclude only fresh food prices)

18:51 EST New Zealand production based GDP fell 1.0% in Q1, worse than expected (Reuters median -0.7%) following an identical 1.0% drop in Q4 (was -0.9%). Expenditure based GDP fell 0.7% in Q1 after an 0.6% pull-back in Q4. Production based GDP fell 2.7% compared to the same quarter last year, also below expectations (Reuters median -2.3%) after a revised 2.1% y/y decline in Q4 (was -1.9%). The decline in Q1 marks the fifth consecutive quarterly GDP(P) decline, with the accelerated pace in Q4 showing no signs of moderation in Q1 of this year. Yet the Q4 and Q1 figures reflect the panic conditions that gripped the global economy, prompting a sharp pull-back in financial and real sector activity. Given that this panic subsided late in Q1 and through Q2, the RBNZ is likely to take this report in stride. Moreover, the Q1 GDP(P) decline matches the RBNZ's forecast, and hence does not alter our view that the Bank will not change rates in July.