Japan central bank seen to raise rates gradually
Wednesday, April 18, 2007
BANK OF JAPAN (BOJ) Governor Toshihiko Fukui said yesterday that the central bank is still in the midst of raising interest rates to a desirable level, signalling the need to keep hiking Japan's still-low rates gradually.
But Fukui's hawkish remarks were balanced by his somewhat cautious view on personal consumption, which he said was prevented from expanding strongly by slow wage growth.
Speaking in parliament, Fukui said keeping rates at a level that did not reflect economic and price conditions would lead to resources being used inefficiently and could prevent the economy from achieving sustained growth.
"Monetary conditions remain very accommodative even after the decision" in February to raise the central bank's key policy rate to a decade-high 0.5 per cent, Fukui told a lower house committee on financial and monetary affairs.
"Japan has emerged from a decade of difficult times and we are still in the midst of adjusting interest rates to a level that is truly desirable," Fukui said.
"The BOJ is in the process of raising rates gradually, albeit very cautiously," he said, adding that the central bank will guide monetary policy appropriately by closely examining economic and price conditions.
Financial markets did not react much to Fukui's remarks, however, as they did not change the dominant view that the BOJ will continue on with rate hikes only at a slow pace.
"The remarks showed that Fukui is very willing to raise rates and that he intends to do so ahead," said Yasunari Ueno, chief market economist at Mizuho Securities.
The BOJ has sat tight after raising the key overnight call rate to 0.5 per cent from 0.25 per cent in February on the view that the economy was expanding with prices in an uptrend.
But with price growth tame, the central bank has pledged to raise rates little by little. Many analysts expect the next rate hike to come in July-September at the earliest.
The interest rate derivatives market is roughly pricing in another rate hike by the end of this year. Benchmark December euro-yen futures stood at 99.110, indicating a three-month interbank rate of 0.890 per cent by then.
Fukui's remarks came ahead of the BOJ's policy meeting on April 27 at which the bank's nine board members will issue a semi-annual outlook report on economic and price developments.
The board members will examine whether economic conditions are moving inline with the BOJ's scenario that solid economic growth will gradually push up prices in the long term.
In another development, Mizuho Corporate Bank said it will acquire China CITIC Bank Corp Ltd H-shares worth some ¥6 billion (US$50.2 million), as a cornerstone investor of China's seventh-largest commercial bank.
China CITIC Bank plans to list 2.302 billion A-shares in Shanghai and 4.885 billion H-shares in Hong Kong at the same time, becoming the second lender, after Industrial and Commercial Bank of China last year, to list simultaneously in the two bourses. Agencies
But Fukui's hawkish remarks were balanced by his somewhat cautious view on personal consumption, which he said was prevented from expanding strongly by slow wage growth.
Speaking in parliament, Fukui said keeping rates at a level that did not reflect economic and price conditions would lead to resources being used inefficiently and could prevent the economy from achieving sustained growth.
"Monetary conditions remain very accommodative even after the decision" in February to raise the central bank's key policy rate to a decade-high 0.5 per cent, Fukui told a lower house committee on financial and monetary affairs.
"Japan has emerged from a decade of difficult times and we are still in the midst of adjusting interest rates to a level that is truly desirable," Fukui said.
"The BOJ is in the process of raising rates gradually, albeit very cautiously," he said, adding that the central bank will guide monetary policy appropriately by closely examining economic and price conditions.
Financial markets did not react much to Fukui's remarks, however, as they did not change the dominant view that the BOJ will continue on with rate hikes only at a slow pace.
"The remarks showed that Fukui is very willing to raise rates and that he intends to do so ahead," said Yasunari Ueno, chief market economist at Mizuho Securities.
The BOJ has sat tight after raising the key overnight call rate to 0.5 per cent from 0.25 per cent in February on the view that the economy was expanding with prices in an uptrend.
But with price growth tame, the central bank has pledged to raise rates little by little. Many analysts expect the next rate hike to come in July-September at the earliest.
The interest rate derivatives market is roughly pricing in another rate hike by the end of this year. Benchmark December euro-yen futures stood at 99.110, indicating a three-month interbank rate of 0.890 per cent by then.
Fukui's remarks came ahead of the BOJ's policy meeting on April 27 at which the bank's nine board members will issue a semi-annual outlook report on economic and price developments.
The board members will examine whether economic conditions are moving inline with the BOJ's scenario that solid economic growth will gradually push up prices in the long term.
In another development, Mizuho Corporate Bank said it will acquire China CITIC Bank Corp Ltd H-shares worth some ¥6 billion (US$50.2 million), as a cornerstone investor of China's seventh-largest commercial bank.
China CITIC Bank plans to list 2.302 billion A-shares in Shanghai and 4.885 billion H-shares in Hong Kong at the same time, becoming the second lender, after Industrial and Commercial Bank of China last year, to list simultaneously in the two bourses. Agencies
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