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BoJ meets amid fading prospects of interest rate hike

August 23, 2007 00:00:00


TOKYO, Aug 22 (AFP): The Bank of Japan met today on interest rates for the first time since turmoil erupted on global markets, thumping stocks and driving up the yen, and putting another rate rise in doubt.
Until recently many analysts were predicting August would be the month that BoJ governor Toshihiko Fukui pushes through the third rate rise since July last year, when the central bank ended years of virtually free credit.
But with central banks pumping billions of dollars into the financial system to ward off a credit crunch-and markets crying out for a US interest rate cut-expectations of a rate hike Thursday have evaporated.
Some analysts now doubt whether the BoJ will hike rates from 0.5 per cent this year as the yen's spike threatens to put the brakes on exports and reduce the price of imports, pushing back prospects of a return to inflation.
The yen's sharp rise is "choking off the inflation recovery so desperately needed for the Bank of Japan to be able to normalise interest rates at a faster pace," said Glenn Maguire, chief Asia economist at Societe Generale.
"The pace of the move in the yen could seriously derail corporate sentiment and inflation expectations at a time when they are already fairly banal," he said.
The Japanese economy is in the midst of its longest post-war recovery but deflation has proven hard to beat, with core consumer prices falling for five straight months, while economic growth slowed sharply in the second quarter.

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