BOJ could raise rates in May

So says Mr Yen. From Bloomberg:

Eisuke Sakakibara, former currency-policy chief at Japan's Ministry of Finance, said it's possible the central bank will raise interest rates in May rather than wait until parliamentary elections are held in July.

When the Diet is in session it's easier to raise rates because any criticism of monetary policy by the ruling Liberal Democratic Party will be countered by the opposition, Sakakibara said in a speech at the foreign press club in Tokyo today.

But the yen carry trade could carry on for a while more.

Sakakibara said the yen will remain weak for the time being, predicting the currency to trade in the 115 to 120 range against the dollar and around 150 per euro.

The former Finance Ministry official said he expects the so-called yen carry trade to continue for some time. He said it's necessary that the trade, in which investors borrow in Japan's currency to buy higher-yielding assets overseas, unwinds slowly.

But the carry trade was not much in evidence this week. From another Bloomberg report:

The yen rose to the highest level in almost three months against the dollar, heading for its biggest weekly gain since December 2005, after a slump in emerging-market stocks and bonds discouraged investors from borrowing the Japanese currency to buy higher-yielding assets.

Economic data, however, may keep rate hike expectations in check. Bloomberg reports:

Core consumer prices, which exclude fresh food, were unchanged from a year earlier, the statistics bureau said today in Tokyo, matching the median estimate of 39 economists. It's the first time prices failed to rise since May, and followed a 0.1 percent gain in December...

Wages slumped 1.4 percent in January, the biggest drop since June 2004, the labor ministry said. The jobs-to-applicants ratio, which shows how many positions are available to a job seeker, fell to 1.06 in January from a revised 1.07 a month earlier.

Other reports showed signs of a revival in consumption. Household spending rose for the first time in 13 months and the unemployment rate held at an eight-year low of 4 percent, the statistics bureau said...

Household spending unexpectedly rose 0.6 percent in January. The increase, the first since December 2005, was a rebound from a 2.4 percent decline the previous year that came amid one of the coldest winters on record, said Reiko Kanda, the statistics bureau's director of consumer statistics.

Japan is not the only economy with concerns on consumer spending. Germany yesterday reported that retail sales in January fell 5.1 percent from December. In the US, the Reuters/University of Michigan's final index of consumer sentiment declined to 91.3 in February, a five-month low, from 96.9 in January, contradicting the Conference Board's consumer confidence index released earlier this week which had shown an increase in February to 112.5 from 110.2 in January.