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Interest Rate Rise in Japan ???
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KiLrOy
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16-Jan-2007 20:10
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[12:06 NEWS: BOJ In Final Coordination For Keeping Rates On Hold] London, January 16. The BOJ are reportedly in final coordination for keeping rates on hold at the January 17-18th policy meeting, according to reports on TBS News. Russell.Bloom@Thomson.com |
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xoefxoef
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16-Jan-2007 20:04
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JAPAN Bank of Japan defies government Tue, 16 Jan 2007 Six months after ending the era of virtually free credit, the Bank of Japan appears set to defy the government with another interest rate rise as it weans the economy off its emergency measures. A growing number of analysts believe the central bank will raise its key lending rate by a quarter point to 0.5 percent at the end of a two-day policy board meeting on Thursday, after a flurry of apparent briefings to local media. Such a decision would put the BoJ on a collision course with the government, which has openly called for the central bank to put off further monetary tightening or risk tipping Japan's economy back into deflation. Even in financial markets, where a rate hike has been largely priced in, there remains scepticism about whether another interest rate hike is justified while inflation remains subdued. "Pretty much everybody expects them to do it. Very few people think they should," said Robert Feldman, chief economist for Japan at Morgan Stanley. "The issue for the BoJ is how they explain themselves and can they justify a rate hike when you have such low inflation? If they don't explain themselves clearly, then there will be some fireworks," he said. Even so, the government was unlikely to make much fuss in public about an interest rate hike as history has shown that "when the government fights with the BoJ in public, typically the government loses", Feldman added. Japan, which for years was beset by stagnant growth, on-off recessions and a downward price spiral, is now in the midst of its longest sustained expansion since World War II. But experts warn that the recovery could stumble if the US economy hits the skids. Inflation also remains tame, with core consumer prices up just 0.2 percent in November from a year earlier. Excluding energy, they were down 0.2 percent. BoJ governor Toshihiko Fukui has made clear his desire to return to a more normal monetary policy with gradual interest rate rises, so a decision to delay further tightening could now unsettle markets. "The BoJ has repeatedly said it will adjust policy rates gradually but if it fails to raise rates a full six months after last July's decision to end the zero interest rate policy, it will need to offer a convincing explanation to the markets," argued Barclays Capital strategist Masuhisa Kobayashi. "If the economy continues its gradual recovery, the BoJ is likely to raise rates once every six months. But if the recovery's pace picks up even a little, we believe capital spending would strengthen and inflationary pressures would build, hastening the pace of rate hikes," he predicted. Economic and Fiscal Policy Minister Hiroko Ota urged the BoJ this week to hold steady its super-low interest rates so as to stimulate the economy and decisively beat deflation. "Japan is facing an extremely critical moment as it is finally getting out of deflation," she told a news conference. She stopped short of saying whether the government would invoke its right to ask for a delay to a rate hike, a move called for by a senior ruling party official over the weekend. While the Bank of Japan is independent, the government has the right to officially ask it to postpone a decision on monetary policy until the following meeting, a request which board members then vote on. Markets, meanwhile, are nervous that the central bank could repeat its blunder of August 2000, when it raised interest rates too soon and helped snuff out a nascent economic recovery. "Things aren't as bad as they were in August 2000 but if consumer price inflation goes negative again, which it probably will in the spring, it's going to be very difficult for the BoJ to justify itself," said Feldman. |
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