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Mixed Message On Japanese Rates

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Mixed message on Japanese rates

The ministers responsible for Japan's economy have given conflicting messages to the Bank of Japan ahead of its interest rate meeting next week.

The bank is widely expected to raise rates from zero for the first time in five years at its meeting on 14 July.

On Tuesday, Japan's Economy Minister Kaoru Yosano appeared to back the rise, but Finance Minister Sadakazu Tanigaki said the bank needed to hold fire.

Both ministers stressed that the choice was down to the bank, not them.

Japan's monetary policy of zero interest rates was introduced in March 2001 in an attempt to revive the economy, which had been in long-term recession since the early 1990s.

One of the main problems was deflation - falling prices - which meant that consumers and businesses were reluctant to spend or invest because any purchase was likely to be cheaper in the future.

Whether it is in July or August, the Bank of Japan will make its decision

Kaoru Yosano, Japanese economy minister

The zero interest rate was designed to make it cheaper for consumers and companies to borrow money for spending, and less attractive for them to save.

Deflation threat

Although he did not say that deflation had gone for good, Mr Yosano said that the conditions for dropping Japan's extreme form of monetary policy were coming into place.

"Whether it is in July or August, the Bank of Japan will make its decision as an independent institution of the nation."

However, Mr Tanigaki was much more cautious, and said that the Bank of Japan needed to keep rates at zero for longer.

"At this juncture, the Bank of Japan needs to continue its zero-rate policy to support the economy from the monetary side and ensure the economy does not go back into deflation."

The Bank of Japan has promised not to raise rates until the threat of deflation has gone and there is strong evidence that retail prices are rising year-on-year.

The bank's most recent quarterly Tankan business confidence survey showed that businesses grew in confidence during the past three months and had big investment plans.

At the end of June government figures showed that prices rose 0.6% in May compared with the same period in 2005, the seventh consecutive monthly rise.

Can you imagine such public goings-on between Brown and King at our 'independent' BoE :angry:

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