TOKYO: Japan's central bank began a two-day policy meeting on Monday amid market expectations that interest rates will stay unchanged. Among the issues it will be weighing are recent price declines and concerns about the U.S. economy.
In February, the Bank of Japan raised a benchmark interest rate to 0.5 percent from 0.25 percent. But economists do not expect another hike for a while, partly because recent data showed that core consumer prices fell 0.1 percent in February compared with a year earlier, dipping for the first time in 10 months, partly because of a drop in oil prices.
That undermined hopes that Japan has fully escaped deflation, or a downward spiraling of prices that also drags on wages and overall growth, despite other signs of growth, including rising corporate profits and expanding gross domestic product.
The Bank of Japan's quarterly tankan survey, released a week ago, showed that confidence among manufacturers slipped in March for the first time in a year, even as it found that large businesses planned to boost investment in the year ahead.
The Bank of Japan's deputy governor, Toshiro Muto, has also pointed to nervousness about the economy in the United States, Japan's biggest export market. "The U.S. has both downside risks for the economy and upside risks for inflation," he said last week.
Although the Bank of Japan is in principle independent from the government, some analysts say that the bank is unlikely to raise interest rates until after the nationwide parliamentary elections scheduled for July.
Source : http://www.iht.com/articles/2007/04/09/business/yen.php
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