AP News, July 12th, 2007
Japan's central bank left its key interest rate unchanged at 0.5 percent Thursday, saying it wanted to wait until after this month's elections to reassess the economy.
The decision matched expectations of analysts who predicted the Bank of Japan didn't want to risk rattling markets or the public by tightening credit before the July 29 parliamentary polls. Still, the BOJ's governing board voted 8-1 on the decision.
The split ruling, which came at the end of a two-day policy meeting, ups the odds that the central bank will raise rates in August. The bank last raised its benchmark interest rate in February, lifting it from 0.25 percent.
Bank of Japan Gov. Toshihiko Fukui said after Thursday's meeting that one board member wanted to raise the rate to 0.75, but that the majority wanted to hold off.
Members also wanted to see how the upcoming elections affect the economy and markets, he said. They will also be focusing on Japan's gross domestic product data, which is due in mid-August before the Aug. 22-23 policy meeting.
Japan is emerging from a decade-long slowdown in recent years, although deflation _ a state of falling prices _ remains a risk. The country's core consumer price index for May fell 0.1 percent, the fourth straight monthly decline.
Fukui has maintained that if the outlook for the economy is convincingly solid, raising interest rates is possible even if consumer prices are falling slightly.
But on Thursday, he said the consumer price index looks set to increase.
"I firmly believe that the on-year change in the core CPI will rise gradually," Fukui said.
The currency market has largely priced in a rate hike next month, foreign exchange traders in Tokyo said.
"Unless indicators from now on keep turning out to be surprisingly weak, the BOJ will probably raise rates next month," said Kazuhiro Kaneko, securities manager at Mizuho Trust & Banking.
The U.S. dollar was trading at 122.06 yen late Thursday in Tokyo, little changed from 122.04 yen late Wednesday in New York.
Separately Thursday, the BOJ issued its monthly economic report, saying that "Japan's economy is expected to expand moderately."
The economy is moving in line with its forecasts for expansion and rising prices, it said, suggesting that the BOJ could be preparing for another rate hike.
