BOJ Stays Pat Affecting All Markets

Published January 18th, 2007 - 01:37 GMT

BoJ Interest Rate Announcement (JAN) (5:30GMT; 1:30EST) <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Actual:                   0.25%                                                                    

Expected:             0.50%                                                                    

Previous:              0.25%                                                                    

How Did the Markets React? 

The Bank of Japan left rates unchanged today, bowing to political pressure and the growing evidence that the Japanese economy is not expanding as fast as forecast. By leaving rates at 25 basis points the lowest interest rate amongst major economies,  the BOJ acknowledged that the countrys consumer sector has not recovered as fast as projected.  The news produced a major impact across all markets with equities and bonds rallying while yen sank to 22 month lows.

Bonds 10-Year JGB

The benchmark 10 year JGBs  rallied in the aftermath of the BOJ announcement with yields sinking from 1.725% to 1.690% as fixed income traders reacted to language in the BoJ announcement that suggested the countrys expansion was going slower than originally forecast





FX USD/JPY<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

USD/JPY skyrocketed today rising to 121.44 as the pair took out two year highs on the news that BoJ did not raise rates at its January Board meeting. FX traders continued to sell yen, which carries the lowest interest rate amongst major industrialized economies, against both the dollar and on the crosses. GBPJPY took out 240 while EURJPY scaled all time highs. The news suggests that the unit may continue to experience selling pressure from carry traders as they try to capture interest rate spread differentials.  


Equities Nikkei

The Nikkei rose to a nine month  high today off the news that BoJ will keep interest rates on hold helped fuel optimism that monetary condition will remain accommodative to stocks. The Nikkei gained 0.6 per cent to close at 17,370.93. The broader Topix rose 0.5 per cent to 1,715.17.

In response to the BoJs decision, the real estate sector gained 1.4 per cent. Mitsui Fudosan, <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Japans biggest property company, rose 1.4 per cent to Y3,010. Sumitomo Realty & Development, another of Japans biggest property companies, jumped 2.4 per cent to Y3,920. The star of the day was the Mothers market of smaller growth stocks, which soared 4 per cent to 1,177.77. Smaller growth stocks would probably be hit in particular by higher interest costs, since they are heavier borrowers than blue-chip Japanese companies many of which have no net debt at all. The pharmaceuticals sector rose 2.2 per cent on general merger speculation after news that Tanabe Seiyaku was in merger talks with Mitsubishi Pharma, a unit of Mitsubishi Chemical.




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