Wednesday 15 December 2004

US raises rates as Japanese business confidence dips

The Federal Reserve raised interest rates yesterday as practically everyone expected.

US raises key interest rate to choke inflation
The Federal Open Market Committee voted unanimously to raise the federal funds target rate, which commercial banks charge each other overnight, by a quarter percentage point to 2.25 percent... "The committee believes that, even after this action, the stance of monetary policy remains accommodative," the policymakers said, a clear hint that more must still be done to quit the days of cheap credit.

Today, the Bank of Japan reported its quarterly Tankan survey results.

Japan's key Tankan confidence index dips as expected
Business confidence at large Japanese manufacturers fell in December, the first drop in seven quarters, the Bank of Japan said Wednesday in its quarterly Tankan survey. The large manufacturers' index fell exactly in line with the average economist forecast at plus 22, down from plus 26 in the September survey, which was a 13-year high. The index of large non-manufacturers was at plus 11, unchanged from the previous survey but one point better than the average forecast.

The Tankan survey indicates further slowdown in the Japanese economy, but from an investment point of view, it -- like the Federal Reserve interest rate hike -- has probably already been discounted.

What would be of greater interest is whether the Japanese economy actually slips into recession next year or the following year. Economists are still not very clear on this.

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