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Saturday, July 15, 2006

Bank of Japan raises rates for the first time in six years

Bank of Japan raises rates for the first time in six years - The BOJ raised rates yesterday, the first such move in six years. The overnight call rate was raised from zero to 0.25 per cent, in line with expectations, but the discount or Lombard rate, at which the BoJ lends directly to financial institutions, was only raised by 30 basis points to 0.4 per cent, less than the forecast 40-basis point rise.

Tony Norfield, global head of FX policy at ABN Amro said: "A 50 basis point rate would have given the yen support; 40 basis points leaves it vulnerable to further weakness"

BOJ Governor Toshihiko Fukui said 3 of 9 board members advocated raising the discount rate, to 0.5 percent. They were outvoted by the majority who favored lifting it by 30 basis points to 0.4 percent, less than some analysts had forecast. Fukui told reporters after the decision the bank doesn't plan to raise rates consecutively.

Dispite the rate rises, the dovish statement contributed to wide yen selling. The yen fell against all major currencies after the news. It closed at 116.12 against the usd, gbp / jpy closed at 213.45, and eur / jpy closed at 146.87.

You can find the Bank of Japan statements here BOJ Announcement of Decisions

Thanks for reading this article. Later I will post how I traded the Bank of Japan news release.


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