Yen 3-year High; Japan Stocks Fall 3%

123jump.com Staff
07 Oct, 2008
New York City

The Bank of Japan left its key lending rate at 0.5% and cautioned that commodities prices are likely to drop but inflation is expected to remain near 2.5%. Japanese yen edged lower but traded near three-year high against euro and dollar.

[R]5:00AM New York, 7:00PM Tokyo – The Bank of Japan keeps its key lending rate at 0.5%.[/R]

Stocks in Japan plummeted as market jitters continued to linger in the wake of the deteriorating condition of the global economy. The U.S. markets plunged as much as 8% in Monday morning, worst intra-day decline when measured in points, sank markets in Europe, Asia and emerging markets.

The U.S. increasingly is sleeping from economic slowdown to a recession and that worries investors in Japan. Nearly 50% of economic growth in Japan is linked to the exports in the U.S. and Western Europe.

Market Sentient

In Tokyo trading Nikkei 225 fell 3.03% or 317.19 to 10,155.90 and the broader Topix Index slipped 2.2% or 21.44 to 977.61.

In the first section of the Tokyo Stock Exchange 29 billion shares valued at 2.5 trillion yen were traded and in the second section 881 million shares worth 6.4 billion yen changed hands.

Of the Nikkei 225 stocks 49 rose, 173 declined, and 3 were unchanged. Nippon Paper led advancers in the index shares with a rise of 7.93% after oil prices retreated.

Bank of Japan Keeps Key Rate at 0.5%

The Bank of Japan unanimously elected to keep its key rate at 0.5% as economic activity and growth remains sluggish due to rising raw material costs and slowing export growth.

Notwithstanding the """"substantial uncertainties"""" that characterizes the world economy, the BOJ forecasts that economic activity will gradually return to a moderate growth path as raw material costs subside.

The central bank added that it expects the consumer price index to remain at 2.5% in the coming months and gradually moderate thereafter.

Monetary authorities further stated that the strains in the financial markets have heightened against the background of failures and rescues of European and U.S. financial institutions.

However, the central bank noted that as downside risks to the economy decreases, there will mounting risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices.

""""The Bank will carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement its policies in an accordingly flexible manner. The Bank will also continue to strive to maintain market stability while closely monitoring developments in global financial markets,"""" said the central bank.

Separately the Bank of Japan pumped 1 trillion yen into the financial system to add liquidity to the money market.

By yesterday, the amount of money that was held by banks and other financial institution gained by 1.23 trillion yen to 7.22 trillion yen yesterday.

Yen Rises

The yen fell 1.83% to 101.92 from 101.89 yesterday against the dollar and rose to 137.69 from 137.50 yesterday against the euro.

Gainers & Losers

Nippon Paper Group led advancers in the Nikkei 225 index shares with a rise of 7.93% followed by rises in JGC Corp. of 6.37%, OJI Paper of 5.42%, in Nippon Express of 4.67%, and OKI Electric Industries of 4.55%.

Nippon Paper Group increased after oil prices fell on speculation demand with plunge.

Pioneer Corp. led decliners in the Nikkei 225 index shares with a fall of 10.71% followed by losses in Mitsubishi Motors of 10.27%, in Marui Group of 9.43%, in Sharp Corp. of 9.27%, and CSK Holdings of 8.84%.

Sharp plummeted after slashing its full year profit estimate.

Financial stocks also dipped. Fukuoka Financial shed 6.65% and Mizuho Trust & Banking slumped 5.98%.