BoJ Holds at 0.5%, Yen Weakens, Nikkei Adds to Yesterday's Gains

Includes: EWJ, FXY, MFG, MTU
by: Steven Towns

The Bank of Japan voted unanimously to keep the uncollateralized overnight call rate at 0.5%. The yen continued to face selling pressure against the US$ (last trading at ¥117.9) following yesterday's reversal, which helped the Nikkei 225 rise (0.9%) for a second day. Economists expected the decision, pointing to concerns over consumer prices and spending, and say the BoJ is likely tracking the effects of last month's hike. Global-Central-Bank-Rates-03-20-07 BoJ Governor Toshihiko Fukui says the bank is adhering to its "gradualist" strategy. He commented recent weakness in global stocks "appears to be a healthy correction" and reevaluation of risk. In its monthly economic report, the BoJ maintained its view the economy is "expanding moderately," saying private consumption has been firm and production is "expected to follow an increasing trend." Price weakness is expected in the immediate future due to lower commodity prices. The BoJ releases its closely watched tankan (quarterly short-term economic survey of business) on April 2 and its next policy meeting is April 9 - 10.

Sources: BoJ press release and monthly report, Associated Press, Bloomberg
Commentary: James Grant's Long Case for the YenChina's Central Bank Raises Interest Rates 0.27%As The Carry Trade Unwinds: Potential Effects Abroad
Stocks/ETFs to watch: Mitsubishi UFJ Fin. Grp. (NYSE:MTU), Mizuho Fin. Grp. (NYSE:MFG). ETFs: iShares MSCI Japan Index (NYSEARCA:EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (NASDAQ:ADRA), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)

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