BoJ talks tough, not likely to act

The Japan Times Online reports that Bank of Japan Governor Toshihiko Fukui said on Tuesday that the central bank may take pre-emptive action on inflation.

"If we deal with problems of prices and the economy after they arise, we have to make radical adjustments and the economy will be affected," Fukui said during a speech he gave in Tokyo.

"The point is, we take a forward-looking approach to avert such risks," he said. "This is intended to maintain long-term economic growth and not to nip growth in the bud."

Based on the latest data, though, there may not be all that much growth to nip.

The Conference Board reported on Tuesday that both the leading and coincident indexes for Japan decreased 0.2 percent in September. It was the third consecutive fall in the leading index.

That report was corroborated by data yesterday from Japan, reported by AFX/Forbes:

The index of leading economic indicators rose slightly to 20.0 in September from 18.2 in August, matching market expectations, preliminary data from the Cabinet Office showed...

The coincident index, which measures the state of the economy at the time, fell to 50 from 80 in August, also in line with market's consensus forecast.

And growth in Japan's bank lending slowed for a third month in October. Bloomberg reports:

Loans rose 1.1 percent in October from the same month a year earlier, a central bank report in Tokyo today showed. Lending adjusted for factors including currency fluctuations, securitizations and bad loan write-offs climbed 2.1 percent...

Japan's money supply, or M2 plus notes in circulation, edged up 0.7 percent in October, the central bank said in a separate report. Broad liquidity, which includes bonds and investment trusts, climbed 2.1 percent.

So pre-emptive or not, when it meets next week, the BoJ is likely to take the same course of action as its South Korean counterpart today. From Bloomberg:

Bank of Korea Governor Lee Seong Tae and his policy makers left the overnight call rate at 4.5 percent, as forecast by all 11 economists surveyed by Bloomberg News...

The majority of economists say the bank may raise borrowing costs, possibly next year, after five increases since October 2005...

"Consumer prices are stable, helped by a drop in food and oil prices," the central bank said in a statement today. "But house price increases have been accelerating since September on rising seasonal demand."