Tuesday, August 14, 2007

BoJ Inject Money

From the FT yesterday:

Bank of Japan injects Y600bn into market

By Michiyo Nakamoto in Tokyo

Published: August 13 2007 01:15 | Last updated: August 13 2007 05:22

The Bank of Japan injected a further Y600bn into the money market, following its Y1,000bn emergency fund injection on Friday, to help ease pressure on interbank lending rates amid global jitters in financial markets related to the US subprime mortgage market.

The BoJ made its move as the overnight call rate edged higher than its target of 0.5 per cent.

Conditions were relatively calm on the Tokyo Stock Exchange, where the benchmark Nikkei 225 had risen 0.5 per cent to 16,844.59 at the end of the morning session.

The market turmoil in the US and Europe has had a limited impact on credit conditions in Japan but is likely to make it more difficult for the central bank to raise interest rates later this month, as had been widely anticipated.

Furthermore, the Japanese government said GDP rose a weaker-than-expected annualised 0.5 per cent in real terms during the second quarter, due to a drop in exports to the US and in private consumption.

That follows a revised 3.2 per cent increase in the previous quarter.

However, global market instability arising from the US subprime problem is more likely to determine whether or not Japan’s central bank raises rates from 0.5 per cent to 0.75 per cent next week, economists said.

The weaker-than-expected GDP “won’t have an impact on the BoJ,” says Hiroshi Shiraishi, economist at Lehman Brothers in Tokyo.

The main factors behind the slowdown in economic activity were a drop in exports and in housing investment and public spending.

The government, however, cited the 10th straight quarter of GDP growth to say that the ongoing economic recovery was intact.

Meanwhile, export strength and a sharp rise in the income account surplus helped Japan’s current account surplus for the first half of 2007 to hit a half-year record of Y12,470bn, up 31.3 per cent.

The trade surplus was Y4,785bn, up 49 per cent, with exports up 12 per cent at Y38,353bn.

Japanese income from investments in overseas securities and payments by foreign employers in Japan, was up 20 per cent to a record Y8,461bn.

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