Wednesday, February 21, 2007

Bank of Japan hikes interest rate

by Elaine Frei

The Bank of Japan voted on Wednesday to raise the interest rate there to 0.5 percent, using as its justification strong figures on economic growth in the fourth quarter of 2006.  That data showed that the gross domestic product was up by 4.8 percent on an annualized basis in the quarter.  The vote for the rate increase was 8 to 1.  Some analysts were puzzled at the increase, considering that the GDP number were the only thing that had changed since last month, when the Bank voted 6 to 3 to hold the rate at 0.25 percent.  In that same period, inflation data was weak, with the core consumer price index rising only 0.1 percent.

Before the decision to raise the rate, a member of the cabinet’s council on fiscal and economic policy said that the government would likely not complain if the rate was raised, but that if it was raised and then the economy began to weaken, the government would hold the Bank responsible.  After the decision was announced, Japan finance minister Koji Omi said that he would “like to respect” the decision.  However, the ruling Liberal Democratic party has been firm in its opinion that the economy is still fragile and that it was too early to raise the rate again.

 

 

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