International | Jul 13 2006
By Chris Shaw
Comments by Japan’s finance minister Sadakazu Tanigaki yesterday suggesting the economy had yet to fully defeat deflation sent a shudder through currency markets overnight, leading some in the market to suspect the Bank of Japan (BOJ) will not lift interest rates by as much as had been expected.
The BOJ meets on Thursday and Friday and had been expected to announce a 0.25% increase in official rates at the conclusion of the meeting, but yesterday’s comments have some suggesting the increase may be closer to 0.15%.
This is despite the Japanese press indicating a majority of BOJ policymakers favour a 0.25% increase given rising prices suggest inflation is emerging and the current level of economic growth remains solid. Recently released business confidence figures, as measured by the Tankan survey, showed companies plan to increase their capex spending, a move also seen as supporting the economic outlook enough to justify an increase in interest rates.
In trading overnight the greenback rose from around 114 yen to the dollar to levels of about 115.50, reversing gains made by the yen earlier this week when it hit a one month high of below 114.
