BoJ Left Rates On Hold; Financials Fall

123jump.com Staff
17 Sep, 2008
New York City

The Bank of Japan left its key rate unchaged at 0.5% and added liquidity to the system. Nikkei 225 rose 1.21% or 140.07 to 11,749.79, and the broader Topix Index advanced 0.4% or 3.86 to 1,121.43. The U.S. Fed bailed out AIG after it offered emergency loan of $85 billion. The bailout, a temporary measure failed to boost investors sentiment. In Tokyo trading banks and real estate companies declined. Commodities prices fell on a weakness in base metals.

[R]5:00AM New York, 7:00PM Tokyo – The Bank of Japan left its key rate at 0.5% and added liquidity to the financial system. The U.S. Fed offered emergency loans to AIG in the largest bailout of a private corporation in the nation’s history.[/R]

Japan stock indexes traded in positive territory buoyed by the U.S. Fed bailout of the largest insurance company AIG. The Fed essentially nationalized the insurer, took 80% control of the company for extending $85 billion in loans to carry out orderly sale of assets.

Market Sentiment

In Tokyo trading Nikkei 225 rose 1.21% or 140.07 to 11,749.79, and the broader Topix Index advanced 0.4% or 3.86 to 1,121.43.

In the first section of the Tokyo Stock Exchange 10 billion shares worth 1 trillion yen were traded and in the second section 359 million shares valued at 3.1 billion yen changed.

Of the Nikkei 225 stocks rose 142 rose, 79 declined, and 4 were unchanged. Tokyo Dome Corp. led advancers in the index shares with a rise of 8.53% followed by Takara Holdings increasing 7.73%.

U.S. Fed Extends $85 billion to AIG

The Federal Reserve Bank nationalized the troubled insurer AIG, fired its management and agreed to offer $85 billion of loan at a substantially higher rate than expected. The dramatic decline of once the largest insurance companies in the world highlights the daunting tasks the regulators in Washington and New York face in restoring investors’ confidence.

The Fed will provide two-year bridge loan to the insurer at 8.5% above the Libor rate and in exchange of warrants that will control 79.9% of the company and replaced its management. The Fed hopes that its action will allow AIG to conduct its business and sell assets in an orderly manner and repay loans in less than two years.

The nationalization of AIG is the worst financial collapse in the U.S history and largest bailout of any private company in the world. The lawmakers and regulators remain at odds as late as last night before the announcement of the loan package. The U.S. Treasury Secretary Office and the Senate Finance Committee members could not agree on how far the U.S. gets involved in AIG and in the future collapses.

BoJ Keeps Key Rate at 0.5%

The Bank of Japan left its key rate unchanged at 0.5% after an unanimous decision.

Monetary authorities also said today that economic growth has remained sluggish due to rising commodity prices and slowing export growth that has spurred the CPI inflation rate to the current 2.5%.

The central bank noted that if the downside risks to inflation continue, there will be increased risk that the continued accommodative financial conditions will lead to economic swings in economic activity and prices.

The BoJ added that it will try to ensure a smooth settlement of funds and maintain financial stability in the wake of recent developments among U.S. financial institutions. Separately, the central bank said it has injected 3 trillion yen today, 2 trillion yen in the morning and another 1 trillion yen in the afternoon, to stabilize the financial markets.

The latest infusion is in addition to 2.5 trillion yen liquidity added to the system yesterday.

Gainers & Losers

Tokyo Dome Corp. led advancers in the Nikkei 225 index shares with a rise of 8.53% followed by increases in Takara Holdings of 7.73%, in Nitto Boseki Co. of 7.29%, in Isetan Mitsukoshi of 6.75%, and Trend Micro of 6.49%.

Shinsei Bank Ltd. led decliners in the Nikkei 225 index shares with a fall of 10.59% followed by losses in Japan Steel Work of 6.06%, in Casio Computer of 5.70%, in JGC Corp. of 5.67%, and Nikon Corp. of 5.64%.

Commodity stocks fell as metal prices declined. Sumitomo Metal Industries slipped 3.48% and Toho Zinc shed 3.20%.

Realty stocks also plummeted. Tokyu Land Corp. lost 4.60%, Heiwa Real Estate slid 2.55%, and Mitsubishi Estate Co. declined 2.45%.