Tuesday 29 May 2007

Positive Japanese data boost case for rate hike

A rate hike from the Bank of Japan appears to be on the cards after the latest data, reported by Reuters:

Japan's jobless rate fell to a nine-year low in April while the availability of jobs improved for the first time in nine months, signalling a tight labour market and boosting the Bank of Japan's case for a rate hike.

Separate data on Tuesday showed that household spending rose much more than expected, suggesting that consumption held up well in April after robust growth in the January-March quarter, although retail sales shrank from a year ago.

Taken together, the data supported expectations that the Bank of Japan could raise interest rates sometime after August, helping lift two-year Japanese government bond yields to a 10-year high.

Economic reports on Monday had also pointed towards rising inflationary pressures.

Prices of corporate services jumped in April.

Japan's corporate services price rose 1.1 percent in April from a year earlier, the biggest increase in nearly a decade, a sign that a steady economic recovery is helping pull the nation out of deflation.

And the output gap widened in the first quarter.

Japan's output gap, a measure of the balance of supply and demand in the economy, was plus 0.7 percent in the first three months of 2007, a research report by a government official showed on Monday...

The report, written by a Cabinet Office official, said the output gap turned positive for the second straight quarter and widened from plus 0.5 percent in October-December 2006.

The data in recent months appear to have vindicated the Federal Reserve in refusing to shift to an easing bias despite a slowing economy. It is now beginning to look like the BoJ's insistence on normalising interest rates despite flat consumer prices may also be vindicated.

No comments:

Post a Comment