Rates on Hold in Japan

123jump.com Staff
19 Aug, 2008
New York City

Stocks in Japan plunged on resurgent credit worries after media speculation that if the U.S Treasury bails out troubled mortgage lenders Freddie Mac and Fannie Mae, shareholders may be wiped out. The Bank of Japan left its key rate unchanged at 0.5%. Domestic related stocks gained as investors sought a haven from shares that are exposed to deteriorating global conditions. JGC led advancers in the Nikkei index with a rise of 3.3% followed by gains in Yahoo Japan and Citizen Holdings.

[R]5:00AM New York, 7:00PM Tokyo - Bank of Japan holds key rate at 0.5%.[/R]

Stocks in Japan plunged on resurgent credit worries after media speculation that if the U.S Treasury bails out troubled mortgage lenders Freddie Mac and Fannie Mae, shareholders may be wiped out. The Bank of Japan left its key rate unchanged at 0.5%.

Market Sentiment

In Tokyo trading Nikkei 225 fell 2.28% or 300.4 to 12,865.05, and the broader Topix Index fell 2.2% or 28.21 to 1,235.54.

In the first section of the Tokyo Stock Exchange 7.8 billion shares worth 842 billion yen were traded and in the second section 160 million shares worth 1.9 billion yen changed hands.

Of the Nikkei 225 stocks 12 rose, 209 declined and 4 were unchanged. JGC led advancers in the index shares with a rise of 3.31% followed by Yahoo Japan Corp. advancing 2.94%.

BOJ Holds Rate at 0.5%

The Bank of Japan reported on its Web site today that it has unanimously elected to keep the uncollateralized overnight call rate at 0.5%.

BOJ added that growth has been sluggish mainly because of high crude oil prices, and soaring raw material costs and weaker exporter growth. However the economy is expected to gradually moderate “as commodity prices level out and overseas economies move out of their deceleration phase.”

U.S. Treasury and Fannie Mae, Freddie Mac

U.S. weekly Barron’s reported on the weekend that according to an insider in the Bush Administration the Treasury is urging mortgage lenders Freddie Mac and Fannie Mae to raise more capital.

However Government doesn’t expect the two companies to be able to raise approximately $10 billion each that is required to maintain its credibility and the U.S. Treasury may have to inject the funds. The report notes that Fannie and Freddie may each have a negative $50 billion in asset value after accounting for deferred tax assets and generous asset valuation.

An intervention by the Treasury may involve preferred stock carrying a seniority, dividend preference and convertibility rights. Existing shareholders will effectively be wiped out.

Gainers & Losers

JGC led advancers in the Nikkei 225 index shares with a rise of 3.31% followed by increases in Yahoo Japan Corp. of 2.94%, in Citizen Holdings of 2.17%, in GS Yuasa Corp. of 1.87%, and Nippon Express of 1.73%.

Domestic related stocks gained as investors sought a haven from shares that are exposed to deteriorating global conditions.

Minebea led decliners in the Nikkei 225 index shares with a fall of 5.42% followed by losses in TDK Corp. of 5.29%, in Sompo Japan Insurance of 5.24%, in Dowa Holdings of 4.99%, and Nippon Mining House of 4.97%.

Exporters also dropped on worries that global economic conditions will continue to deteriorate. Mazda slid 4.48%, Bridgestone slumped 4.24%, Canon dipped 3.75% and Nikon Corp. shed 3.35%.

Mitsubishi UFJ Revises Offer for UnionBanCal

Mitsubishi UFJ reported on its Web site that Mitsubishi UFJ Ltd., a subsidiary of Mitsubishi UFJ Financial Group, Inc., resolved at a meeting of its directors yesterday to commence a cash tender offer in the United States for all of the outstanding shares of common stock of UnionBanCal Corporation.

The company has revised its offer to $73.50 per share or $3.5 billion and also decided to execute the definitive merger agreement in relation to the transaction by which UNBC will become a wholly owned subsidiary of BTMU.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 300.40 or 2.28% to 12,865.05, Hang Seng index in Hong Kong decreased 446.30 or 2.13% closed to 20,484.37. ASX 200 index in Australia decreased 118.60 or 2.38% to close 4,866.40. The KL Composite index in Malaysia decreased 14.94 or 1.38% closed to 1,069.42.

The Kospi Index in South Korea decreased 26.30 or 1.68% to close at 1,541.41, SET index in Thailand closed lower 5.90 or 0.85% to 691.33 and JSE Index in Indonesia decreased 42.65 or 2.05% to 2,042.50. The Sensex index in India decreased 101.93 or 0.70% closed to 14,543.73.