Dollars and Jens
Tuesday, July 04, 2006
Japanese interest rates
The Japanese central bank had flooded the banking system with liquidity, and has been targetting 0% interest rates for a long time. It has been removing the excess liquidity since March or so, but keeping the 0% target up to this point there's a good chance that will change next week.

Some Japanese politicians are openly opposing such a hike, and there are historical reasons for anxiety; the bank raised rates a few years ago when the economy gave a head fake, and then promptly fell back into deflation.

If you make continuity assumptions, you would suppose the ideal time to raise interest rates would come when neither hiking them nor standing pat would appear obviously wrong, and that seems to be the case now. Inflation is positive, but quite low, and the economy strong right now; I'm inclined to agree with the bank that negative real interest rates aren't called for right now, but I'm sure Koizumi has been following the Japanese economy more closely than I have.

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