Thursday, August 30, 2007

Mizuno: Japanese Rate Decisions Have Contributed To Worldwide Volatility

by Stewart Douglas

The dissenting member of the Bank of Japan policy committee today announced his feelings that the low Japanese interest rates may have been contributing to the wider global economic situation.

In a speech made today, the only dissenting member in the 8-1 decision to maintain interest rates at 0.5%, Atsushi Mizuno said that in his opinion the Japanese interest rate policy was not in line with the rest of the world, creating a danger of instability.

Mizuno had motioned that rates be raised by a quarter of a percentage point to take the prime rate to 0.75%, in an attempt to calm the Japanese economy and bring it in line with worldwide markets, in the face of stiff opposition from the eight other members of the board.

With the ongoing situation unfolding in the US sub-prime sector affecting banks and lenders across the world, Mr Mizuno in his speech to business leaders today announced his view that Japanese policy is currently out of sync with fundamental economic principles, thus adding weight to the world economic situation.

“Recent turmoil in the financial markets proves that keeping rates that aren’t in line with economic fundamentals could lead to risks of destabilizing financial markets” said Mizuno earlier in the day.

Analysts remain undecided as to the likelihood of interest rate rises within the Japanese economy over the next month, with some camps feeling it is only a matter of formality before interest rates grow as envisaged by Mr Mizuno.

Also, in figures released today, retail sales in Japan were said to have fallen by approximately 2.2% over the course of July, indicating that current interest rate policy may be more than sufficient to keep control of the market and the quickening economic growth the region is currently experiencing.

Whilst this may as a result of anxiety from the US markets, many analysts have also put it down to falling wages and the threat of increasing interest rates.

 

 

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