Yen Declined As BOJ Keeps Interest Rates Unaltered

Yen declined as Bank of Japan kept benchmark interest rate at 0.5% saying it still awaits stronger economic indicators to support a rate hike. Stocks ended low after rallying initially as default of subprime markets in the US spread fears among investors. Bonds performance was mixed but later in the yields surged.



Bank of Japan Keeps Key Rate at 0.5%; Mizuno Dissents:[/B]
The Bank of Japan voted 8-1 to keep its benchmark interest rate unchanged, with the first dissenting voice in five months signaling policy makers may be closer to endorsing an increase. Governor Toshihiko Fukui and his policy board colleagues held the key overnight lending rate at 0.5 percent at a two-day meeting that ended today, the central bank said in Tokyo. Atsushi Mizuno, one of three board members who unsuccessfully proposed a rate increase in January, opposed the decision. The central bank will probably raise the key rate next month, according to economists and investors. Fukui may give further hints on the bank's view when he speaks to reporters and the bank publishes a review of its economic outlook later today.
Abe Election Loss May Return Japan to Factional Rule:
Prime Minister Shinzo Abe, who has led Japan for just 10 months, has less than three weeks to save his political career. Abe's Liberal Democratic Party faces parliamentary upper- house elections on July 29 as his approval ratings slump. Voters are angry about government scandals, including the suicide of a cabinet minister and the mismanagement of millions of pension records. A defeat would likely force Abe, 52, to resign. His fall may mean a return to the revolving-door premierships of the 1990s, fueled by factional politics within the governing LDP, which predecessor Junichiro Koizumi temporarily quelled.
Citigroup to list shares in Tokyo, boost branches:
Citigroup plans to list its shares in Tokyo and boost the number of its branches in Japan by 40 percent as the U.S. financial group looks to move beyond a niche role in the world's second-largest economy. The company, which first said in February it was considering a Japanese listing, said it planned to list its shares, not depositary receipts, on the Tokyo Stock Exchange. Ruling out depositary receipts would likely mean the world's largest financial group would pursue a Japanese initial public offering, though spokeswoman Atsuko Yo****sugu said nothing had been decided. The company also said it aims to lift its number of branches across the country to about 200, although Yo****sugu declined to specify a time frame.
The Yen took a dip right after the announcement by BOJ that it will continue to keep the benchmark interest rate at 0.5% and awaits stronger indications of economic growth before tightening the money supply. The policy makers voted 8-1 to keep the overnight lending rate unaltered. After few hours, Fukui commented that the outlook for the economy and prices broadly matches its April forecasts implying a possible rate hike in August. According to two-thirds of 34 economists surveyed by Bloomberg News this week, Fukui should propose a rate hike next month. The upcoming Upper House election on July 29 is also considered to be one of the reasons of keeping the rate unchanged today as a rise would have increased "unnecessary political cost". Investors see a 69 percent chance of an August rate increase, according to Credit Suisse group calculations. Industrial output report, which came out few minutes after the rate decision, fell 0.3 percent from April, down .1 percent form the estimate. This helped the USDJPY pair retreat only marginally from the recent increase. The ministry said shipments in May had been 0.2 percent higher than in April whereas inventories fell 0.3 percent. As of 3:00 pm New York time the pair was trading at 122.10.

The share market started impressively with the small caps leading the gains as tougher accounting standards revived confidence in earnings reports and rebound in overall consumer spending. Strategists at Credit Suisse, JPMorgan and UBS all had recommended investors last month that they should consider adding to their holdings of smaller companies. Some exporters such as Fanuc Ltd. and Canon rallied after the yen declined against the dollar and Euro after the BOJ meeting. The growth; however, was arrested towards the close of the day mainly because Deutsche Bank lowered its stock price forecast for Nomura holdings Inc. explaining company?s valuation losses to subprime loans may increase. Nourma was down 4.8 percent for the day, its biggest drop in three months. This spared anxiety among investors lowering all banking stocks and pushing Nikkei 225 to two week low closing at 17,984.14. Tokyo Electron fell too after saying that its first-quarter orders dropped 35 percent as makers of memory chips delayed spending. Nikkei futures expiring in September declined 0.4 percent to 17,980 in Osaka.

Bonds performance was mixed and highly volatile during the start of the day. But after the BOJ rate decision, yields rose 2.5 basis points closing at 1.900 percent. Ten-year bond futures for September delivery fell 0.29 to 131.71 on the Tokyo Stock Exchange