Friday, 14 July 2006

Bank of Japan ends zero interest rates

As widely expected, the Bank of Japan raised interest rates today. From AFP/CNA:

The Bank of Japan on Friday decided to end over five years of zero interest rates in a watershed decision for the world's number two economy which has finally escaped from its long deflationary spiral.

The unanimous decision by the central bank's policy board to raise its key rate by a quarter point to 0.25 percent marks a return to a more normal monetary policy and reflects a trend of rising interest rates around the globe.

The Bank of Japan said in a statement that it would continue to raise interest rates "gradually" in light of economic developments but would probably keep them "very low" for some time.

Predictably, there was little reaction to the move from markets.

The yen gained after the BoJ's announcement. The dollar eased to 115.60 yen, from 115.71 shortly before the decision was unveiled, while there was little impact on the stock market, which continued lower on concerns over rising oil prices.

The BoJ's move was described by the above report and others as a watershed. Perhaps so.

But it is also possible that the BoJ's tightening campaign will be even more gradual than the Fed Reserve's. And we all know how long it took for Fed tightening to make a significant impact on markets and the economy.

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