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Wednesday, Dec. 20, 2006


BOJ, noting weak data, leaves interest rates alone

Staff writer

The Bank of Japan wrapped up its two-day Policy Board meeting Tuesday by saying the benchmark short-term interest rate will remain unchanged, causing market watchers to look for any clue from Gov. Toshihiko Fukui's remarks to gauge when the next rate hike may occur.

Most investors predicted the BOJ would not raise the interest rate this month. Now they are starting to wonder if the Jan. 17-18 meeting will be the signal.

The nine-member Policy Board this time unanimously agreed to maintain the uncollateralized overnight call rate at 0.25 percent, which has been in place since the BOJ ditched the "zero-interest-rate" policy July 14.

Fukui indicated that a few economic indicators that recently came out weaker than expected led members to think twice about a hike this month.

"The latest private consumption and consumer price index turned out weak and we would like to conduct a deeper analysis with the next index," Fukui told a news conference after the policy decision.

But he declined comment on when the next rate hike may happen, saying the BOJ will make a decision "after analyzing the economy in a comprehensive way."

"I cannot say if we will come up with the same decision or a different one after the next Policy Board meeting," he said.

The lack of a rate hike apparently had no effect on share prices, because the market had widely anticipated no change this week. The Nikkei average dropped 185.23 points, closing at 16,776.88.

Many economists predict the BOJ will raise the interest rate in January.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said the BOJ had been eager to raise the interest rate this month but was discouraged due to the weak revised GDP data.

"January still remains the best option," Kumano said. "But if the BOJ does not raise the rate next month, the timing is likely to be pushed back to a much later schedule."

If the central bank decides against a rate hike next month, it may have a tough time doing so before the Upper House election in July, he said.

In its monthly economic report released Tuesday, the BOJ noted that private consumption is still rising, but the pace of increase is slow. The assessment was a downward revision from November's wording that private consumption is increasing.

"The pace of increase for private consumption has been slow since early summer and the trend has not changed after that," a BOJ official told reporters, explaining the reason for the downward revision.

The BOJ report further said growth in wholesale prices will be "somewhat weak or remain flat in the immediate future" due to the drop in oil prices. A report in November said price growth "will continue to slow."

But the report's assessment remained unchanged that the economy is expanding moderately and will continue to do so in the near future.

Recent economic indicators that the BOJ took into consideration gave a mixed picture, however.

Last Friday, the quarterly "tankan" survey showed business sentiment for large manufacturers rose for the third straight quarter.

But earlier this month, July-September gross domestic product figures were revised sharply downward to an annualized 0.8 percent from the 2 percent rise in the preliminary report, because of decelerating capital investment and weak private consumption.

The weak figure fueled growing calls against a rate hike from politicians in the ruling Liberal Democratic Party seeking to mollify voters.

"I hope (the BOJ) will not rush to raise the interest rate," said LDP Secretary General Hidenao Nakagawa at a speech in Saitama Prefecture on Dec. 8. "The BOJ needs to communicate thoroughly with the government."

The Policy Board meeting included officials from the Finance Ministry and the Cabinet Office.

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The Japan Times

Article 3 of 9 in Business news

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