BoJ Holds at 0.5%, GDP Slows, Nikkei Trades Slightly Lower

The Bank of Japan voted unanimously to keep its overnight call rate target unchanged at 0.5%. Annualized Q1 GDP growth of 2.4%, announced before the BoJ's decision, was a sharp sequential decline from a revised 5.0% (previously 5.5%) and lower than economists' average estimate of 2.7% (Bloomberg). The yen was last trading near 120 against the US$, its weakest level since prior to the late-Feb. global stock sell-off. The Nikkei 225 lost 0.2% to 17,498.60, while the broader TOPIX declined 0.3% to 1,707.27. Richard Jerram, chief economist for Macquarie Securities in Tokyo, commented: "It is a mistake to interpret it as poor figures being a sign of a new trend." Jerram believes the BoJ will hold at 0.5% over the next three to six months, since there is no hurry to hike while consumer prices are still falling. As for Q1 GDP, a larger-than-expected rise in consumer spending helped offset an unexpected fall in capital investment. "The drop in capital spending does reflect concern about the outlook for the U.S. economy, but it's also a correction from several quarters of very strong spending figures," said Takuji Aida, chief Japan economist at Barclays Capital in Tokyo.

Sources: Associated Press, Bloomberg
Commentary: Japan: Weekly ETF and CEF Performance • The Yen Carry Trade: Ready to Repatriate? • BoJ Holds at 0.5%, CPI, Production and Retail Data Weak
Stocks/ETFs to watch: Mitsubishi UFJ Financial Group (MTU), Mizuho Financial Group (MFG). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (FXY)
Related: Bank of Japan's Monthly Report of Recent Economic and Financial Developments

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Comments

[ikkyu:]

Man, this country just can't get it together. Some day there will be a raging bull again. But it ain't going to be anytime soon.

Mr. Towns, do you cover real estate? Can you do something on j-reits?

Thanks for your analysis.

Cheers from Osaka,
john

2007 May 17 09:15 AM