Japanese Stocks Rally After Federal Reserve Cuts Discount Rate
By Makiko Suzuki
Outside the Hong Kong Stock Exchange Aug. 20 (Bloomberg) -- Japanese stocks advanced by the most in more than five years after the Federal Reserve unexpectedly cut the discount rate to ease credit, boosting stocks in the U.S. and Europe.
Canon Inc. and Mitsubishi Corp. soared on reduced concern the U.S. economy, the world's largest, will slow. Mitsubishi UFJ Financial Group Inc. led gains by financial stocks.
``The rate cut was pretty effective in curtailing panic in the markets which have no direct link to the subprime loan problem,'' said Masayuki Kubota, who helps oversee $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. ``Global growth won't be hampered by the subprime issue.''
Indexes surged by the most since March 4, 2002. The Nikkei 225 Stock Average jumped 562.89, or 3.7 percent, to 15,836.57 at the 11 a.m. break in Tokyo. The Topix index rose 53.89, or 3.6 percent, to 1,534.28.
Stocks that gained outnumbered those that fell by almost six to one on the Tokyo Stock Exchange's first section.
In the U.S., the Standard & Poor's 500 Index rose 2.5 percent while the Dow Jones Industrial Average increased 1.8 percent on Aug. 17. Europe's Dow Jones Stoxx 600 Index rallied 2.2 percent after falling as much as 1 percent before the Fed acted.
Canon Surges
Canon, the world's No. 1 digital camera maker, surged 440 yen, or 8.2 percent, to 5,840, jumping the most since Sept. 4, 2001. Toyota Motor Corp., poised to become the world's biggest automaker by sales, gained 350 yen, or 5.7 percent, to 6,540.
Nintendo Co., the world's biggest maker of hand-held game consoles, rose 2,700 yen, or 5.8 percent, to 49,400 in Osaka. It was the most actively traded stock by value with 59.55 billion yen ($521 million) in shares changing hands.
The FOMC reduced the rate at which it makes direct loans to banks by 0.5 percentage point to 5.75 percent, the first time it has cut borrowing costs between scheduled meetings since 2001. Policy makers left the overnight federal funds target rate unchanged at 5.25 percent.
In the statement, the committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.''
``The next step that people expect from the Fed is to cut the federal funds rate,'' said Norihiro Fujito, strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``Central banks in Japan and Europe also need to shift to monetary easing.''
BOJ's Provides Liquidity
The Bank of Japan added 1 trillion yen to the money market at 9:20 a.m. in Tokyo, one of the two scheduled times a day the bank adjusts funds in the financial system.
Measures tracking shipping lines and trading companies, whose profits have been boosted by commodity demand in China and other emerging countries, jumped 6.1 percent and 6.4 percent respectively.
Nippon Yusen K.K., Japan's biggest shipping company, climbed 67 yen, or 6.9 percent, to 1,044. Mitsubishi Corp., Japan's largest trading company, soared 235 yen, or 8.9 percent, to 2,870. Mitsui & Co., the nation's second biggest, climbed 165 yen, or 8.2 percent, to 2,170.
``Solid global economic expansion and increasing infrastructure investment in emerging countries will continue,'' said Daiwa SB's Kubota. ``Once investors confirm that trend in the July-September earnings figures, more money will shift into stocks benefiting from overseas demand.''
Banks Rise
Mitsubishi UFJ, Japan's biggest lender by assets, rose 40,000 yen, or 3.8 percent, to 1.1 million. Mizuho Financial Group Inc., the second largest, surged 44,000 yen, or 7 percent, to 676,000. Sumitomo Mitsui Financial Group Inc., the nation's third biggest, climbed 19,000 yen, or 2.2 percent, to 900,000.
The Topix Bank Index slumped 11 percent last week as stocks plunged worldwide when a credit crunch sparked by losses on U.S. subprime mortgage investments forced investors to sell assets to raise cash. Central banks injected money into the market in an attempt to provide liquidity.
The turmoil caused losses at Australian hedge funds, German banks and Canadian short-term debt issuers.
Even after the rate cut, the Chicago Board Options Exchange Volatility Index, or VIX, stayed near the highest since 2003.
``The high VIX index price suggests that we are still not free from sudden swings in the market,'' said Mitsubishi UFJ's Fujito.
Daikin Industries Ltd., an air-conditioner maker, jumped 300 yen, or 6.9 percent, to 4,680. The company confirmed an earlier report by the Nikkei newspaper which said Daikin will start exporting home air conditioner to the U.S. next summer. It has only exported industrial-use air conditioners to the U.S. so far.
Don Quijote Co., an operator of a discount-store chain, advanced 220 yen, or 9.7 percent, to 2,490. The company said it expects operating profit, or sales minus the cost of goods sold and administrative expenses, to grow 27 percent to 17.2 billion yen in the year started July 1, more than the 15 percent growth in the previous year.
Nikkei futures expiring in September climbed 3.5 percent to 15,840 in Osaka and advanced 3.6 percent to 15,820 in Singapore. |
