BOJ Raises Rates to 0.25%

Elena
14 Jul, 2006
New York City

The decision boosts the Bank of Japan''s key overnight call rate to 0.25% from 0.069%, signifying that deflation has been overcome and the economic recovery is gathering speed. The bank''s move links Japan with the other major economies, where central banks are also tightening their money policy.

[R]8:00AM Bank of Japan raised interest rates for the first time in six years.[/R]
For the first time in six years, Japan''s central bank raised interest rates Friday, ending an era of zero percent interest. The decision boosts the Bank of Japan''s key overnight call rate to 0.25% from 0.069%, giving a clear signal that the world''s second-largest economy has pulled out of a decade-long slump. Raising rates signifies that deflation has been overcome and that the economic recovery is gathering speed. 'Today's decision will contribute to ensuring price stability and achieving sustainable growth in the medium and to long term,' the BOJ said in a statement released after the policy board's unanimous 9-0 vote to raise rates at the end of a two-day meeting.

The move which was widely anticipated by analysts and investors, puts Japan in line with monetary policy in the United States and Europe, where central banks are also tightening their money policy. In June, the European Central Bank raised its key interest rate to 2.75%, while the Federal Reserve has lifted the fed funds rate 17 times straight to 5.25%.

Japan lowered rates to zero in 2001 in an attempt to jump-start the beleaguered economy and wipe out a destructive trend of deflation, which eroded corporate earnings and workers'' paychecks.


[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.