Yen Sinks to Record Lows Against Several Majors

[DailyFx]

Bank of Japan?s decision on Friday to maintain interest rate at 0.5 percent -the lowest among major developed economies - has eroded the value of the Japanese yen against most majors. As interest rate differentials spur carry trades between higher-yielding currencies and the low-yielding yen, the yen has weakened against all 16 most-actively traded currencies since the beginning of the year

JAPAN NEWS HEADLINES:

- "Monthly economic report maintains the view that the Japanese economy is staging a ‘recovery?, despite 0.2 percent monthly decline in industrial production in certain sectors."
http://mdn.mainichi-msn.co.jp/busine...bu025000c.html
Source: Mainichi Daily News
- "Estimate of first quarter output gap has been revised upwards to 0.9 percent, the highest since Q1 1992, suggesting the Japanese economy may finally be recovering from years of deflationary conditions."
http://www.reuters.com/article/compa...T8310720070618
Source: Reuters
- "Bank of Japan governor Fukui expresses intention to review further economic data before taking steps to tighten monetary policy, suggesting possible interest rate hike may come later than expected."
http://online.wsj.com/article/SB1182...googlenews_wsj
Source: WSJ
JAPAN MARKET ACTIVITY:
Currency Markets - USD/JPY:
Bank of Japan?s decision on Friday to maintain interest rate at 0.5 percent -the lowest among major developed economies - has eroded the value of the Japanese yen against most majors. As interest rate differentials spur carry trades between higher-yielding currencies and the low-yielding yen, the yen has weakened against all 16 most-actively traded currencies since the beginning of the year. The yen fell to a record low of 165.78 against the euro, a 15-year low of 245.15 per pound, and sank to a near four year low against the US dollar to close at 123.62.

USD/JPY (Daily, 12/18/06 - 06/18/07)


Equity Markets - Nikkei 225 Index:
The Nikkei 225 Stock Average closed at 18,149.52, up 178.03 points, or 0.99 percent, the second highest closing in nearly four months. The booming performance of the Japanese equity markets stems from release of data about lower-than-expected US core consumer price inflation and export demand is expected to get a boost from the continual decline of the yen versus the US dollar. Leading the gains were automakers such as Toyota Corp. as share price peaked 0.5 percent to 7,730 yen, the highest level since March 2007. Stocks of exporters of high-tech equipment also made significant gains with Canon Inc recording the largest monthly gain of 2.1 percent to close at 7,330 yen.

Nikkei 225 Index (Daily, 12/18/06 - 06/18/07)


Fixed-Income Markets - Japanese 10 year Government Bond Futures:
Government bond yields continued to decline for third straight day, closing at 1.89, down 2.5 basis points. Bond prices recorded the largest gain in four weeks on Friday after Bank of Japan Governor Fukui indicated that several economic factors need to be examined before implementing an interest rate hike. Since US core consumer price inflation grew at a lower-than-expected rate of 0.1 percent in May, expectations of an interest rate increase by the Federal Reserve have receded and in turn helped Japanese bonds retain their appeal versus US treasuries.

Japanese Government Bonds (Daily, 06/05/07 - 06/15/07)