jpy news

Yen Little Changed on BOJ Decision

Friday, 13 October 2006 07:21:30 GMT  |  Terri Belkas, Junior Currency Analyst

USD/JPY was little changed in Asian trading after the pair strengthened on economic data, but subsequently weakened back to yesterday’s closing price amidst the Bank of Japan’s interest rate decision. Japanese domestic CGPI rose more than expected at a pace of 0.3% in the month of September, taking the annual rate to 3.6%. This represents the highest in 25 years, another sign of an ending of deflation and consistent with the BoJ’s declared intention to continue gradual tightening with an eye on price and economic developments. Meanwhile, the BoJ kept its view unchanged in its monthly economic report, saying that Japan’s economy is expanding moderately. The language the central bank used to explain its economic assessment was largely similar, but the BoJ downgraded the outlook for corporate goods prices. It said that the pace of increase in domestic CGPI is expected to slow in the immediate future due to the recent drop in commodity prices. In addition, it added “favorable business sentiment” to describe the current business spending situation, which was likely in response to the improved results of the latest Tankan survey. As of 7:12GMT, USD/JPY trades at 119.37, in line with Thursday’s New York close of 119.35.

Japanese stocks erased modest morning gains to close down Thursday, hit by falls in banking stocks.  This hit the Topix particularly hard, since it has a strong weighting in bank shares. The Topix fell 0.5% to 1,613.64 while the Nikkei 225 was down 0.2% to 16,368.81.  However, the Mothers market of smaller growth stocks recovered slightly after heavy losses the previous couple of days. The index rose 0.9% to 1,083.08.  Banking plunged 2.3%, hit by UBS’ decision to cut its target price for some of the biggest financial institutions. Mitsubishi UFJ, the world’s biggest bank by assets, sank 3.2% to Y1,530,000. Mizuho Financial, its largest domestic rival, closed down 2% to Y906,000. SMFG, the third biggest, declined 1.6% to Y1,240,000. Sumitomo Trust & Banking was hit particularly hard, dropping 4.6% to Y1,248. The fall in banking shares was also partly countered by a 1.3% rise in non-ferrous metal stocks, following strong overnight gains in metals prices. Sumitomo Metal Mining leapt 3.5% to Y1,463. Consumer finance companies, which had fallen heavily in the past two days after a profit warning by Jaccs, a consumer lender hitherto regarded as a relatively safe bet, also bounced back, helped by the view among some hedge funds that prices have now reached bargain status.  Takefuji climbed 0.9% to Y4,630. Aiful gained 4.4% to Y4,020. Jaccs climbed 4.1% to Y890. Although some of the rises were quite steep, consumer finance companies remain well down on the week so far.

Yields on 10-year JGBs firmed 2 basis points to 1.755% ahead of Bank of Japan Governor’s post-meeting speech. Meanwhile, prices dipped to 99.535.

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