Japan Hikes Interest Rates

Ivaylo
14 Jul, 2006
New York City

The policy board of Bank of Japan hiked its key interest rate by a quarter percentage point to 0.25% Friday, putting an end to its five-year policy of keeping rates near zero percent. In addition to tightening the overnight call rate, the central bank also chose to boost the official discount rate, or the interest rate banks charge each other in the interbank market. Worries over escalating violence in the Middle East also impacted the stocks negatively.

[R]7:30AM Tokyo falls on interest-rate rise and Middle East tensions.[/R]
Asian markets declined on Friday. Japan's benchmark Nikkei Stock Average ended down 1.7% to 14,845.24. Electronic and industrial exporters fell on concerns that high energy costs will slow consumption in the key U.S. market, and that a rate rise will boost the yen, making Japanese goods more costly overseas. Shares of Toshiba fell 2.1%. Canon closed down 1.9%. Conglomerate Sony dropped 1.2%.

South Korean shares plunged to their lowest level in more than two weeks. The Korea Composite Stock Price Index, or Kospi, settled down 2.33% at 1255.13. Shares in technology company Samsung Electronics shed 2.7%, after the company said that net profit fell 11% in the second quarter due to weak demand for its mobile phones.

In Hong Kong, the benchmark Hang Seng Index shed 1.04% to 16135.71. Chinese shipping-container company China Merchants, was the biggest blue-chip decliner, dropping 5.4%. Its peer Cosco Pacific lost 4% on oil-price worries. Shares of phone company PCCW were off 1% as investors remained jittery towards the growth prospect of the company.

Elsewhere in the region, the Weighted Price Index of the Taiwan Stock Exchange shed 2.1% to 6428.03, its lowest closing level since June 21. And Australia's benchmark S&P/ASX 200 index was down 2.3% to end at 4966.1.

[R]6:30AM Europe plunges due to oil price rise and geopolitical tensions.[/R]
European markets traded lower by mid-morning session. The U.K. FTSE 100 index lost 0.5% at 5,733, the German DAX Xetra 30 index sank 1.1% at 5,468 and the French CAC-40 index shed 0.9% at 4,809. Oil hit auto investors, as Volkswagen came off 1% while BMW lost 0.8% and Peugeot also fell 0.8%. Renault attracted early focus in light of its prospects for an alliance with General Motors with a meeting between the two carmakers scheduled for Friday. Renault declined 1% in Paris.

Chipmaker Infineon Technologies lost 1.3% after 34 U.S. states were expected to file a lawsuit on Friday against seven makers of DRAM memory chips, alleging that price-fixing from 1998 to 2002 forced up the prices of computers that use them.

Energy price boosted, oil and gas companies bucked the trend, with BP Royal Dutch Shell and Total all higher on the back of the rising oil price. Stada Arzneimittel of Germany also advanced, up 1.3% after it said it has agreed to buy Serbian generic drugmaker Hemofarm for 485 million euros ($617 million) in cash. Food equipment maker Enodis surged 9.2% after it said its board is considering a takeover proposal from the Manitowoc Co.

Oil prices topped $78 per barrel Friday, near record highs, as mounting tensions in the Middle East raised concerns of a possible disruption of oil supply. Light sweet crude for August delivery was up $1.35 to $78.05 a barrel. The Brent contract for August at London's ICE Futures exchange, which expires at the close of trading Friday, surged $1.16 to $77.85 per barrel. Gold opened Friday at a bid price of $660.60 a troy ounce, up from $645.50 late Thursday.

The dollar gained against the euro and the yen Friday after Japan's central bank hiked interest rates for the first time in almost six years. The U.S. dollar was trading at 116.05 yen, up from 115.24 yen late Thursday in New York. The euro fell to $1.2657 on Friday, down from $1.2692 in late New York trading. The British pound also slipped to $1.8366, from $1.8442.

[R]5:00AM Gold surges on the back of oil prices jump.[/R]
August gold futures ended $3.20 higher at $654.40 a troy ounce on the NYME. September silver closed 7 cents lower at $11.485 an ounce after hitting an $11.68 session high. October platinum shed $3.60 to finish at $1,264 an ounce, while September palladium finished $4.10 lower at $334.05 an ounce. The most-traded September copper contract gained 1.15 cents to end at $3.6765 per pound.

Oil prices advanced further into uncharted territory, hitting a new record of more than $76 a barrel on concern over the broadening Israel-Lebanon conflict. The August crude contract surged to a record intraday high of $76.85 before ending $1.75 stronger at $76.70 a barrel. The August gasoline contract advanced 4.41 cents to close at $2.3000 a gallon. On the New York Board of Trade, July Arabica coffee futures climbed 0.80 cent to finish at 99.35 cents a pound, and September coffee gained 0.75 cent to end at $1.0070 a pound. Among futures on raw sugar in foreign ports, October finished 0.15 cent higher at 16.42 cents a pound, and March gained 0.13 cent to finish at 16.81 cents a pound.