- The Washington Times - Tuesday, July 4, 2006

TOKYO (AP) — The Bank of Japan intends to end its zero interest-rate policy at a board meeting next week, a press report said yesterday.

Economic data have spurred speculation that the central bank will raise interest rates by a quarter point after its two-day policy meeting that starts July 13.

The Bank of Japan has “decided in principle” to raise rates at that meeting, Kyodo News agency reported, citing unidentified sources.

Economy and Banking Minister Kaoru Yosano said yesterday that the economic, price and market conditions were beginning to fall into place to allow the bank to lift borrowing rates after keeping them at zero for five years.

But later in the day, Finance Minister Sadakazu Tanigaki urged the bank to wait, so as not to torpedo the economy’s budding recovery.

On Monday, the central bank’s closely watched “tankan” survey showed that companies are more optimistic about the future. Those results and signs of consistent price increases after years of deflation have spurred speculation that the central bank will raise interest rates.

Mr. Yosano appeared to express support for raising interest rates soon.

“While [the conditions] haven’t fallen into place yet, it’s clear that they are falling into place,” he said at a regular press conference. “Whether it is in July or August, the Bank of Japan will make its decision as an independent institution of the nation. I believe that it will make its decision responsibly and with discernment,” he said.

Prime Minister Junichiro Koizumi also said the timing of a policy change was “something that the [central bank] should decide, with a close eye” on price movements, suggesting he would respect the central bank’s decision.

Mr. Tanigaki, however, bluntly urged the bank to keep rates at zero. “At this point, I believe it’s necessary to support the economy through its zero-rate policy, to ensure that the economy sustains growth and will not return to deflation,” Mr. Tanigaki told reporters.

Chief Cabinet Secretary Shinzo Abe echoed those concerns, saying he wanted the Bank of Japan to keep rates at zero “for the time being.”

Although the Bank of Japan is officially independent, political opinion often has had an influence on central bank policy.

“Mr. Yosano is considered sympathetic with the bank, so it’s sort of difficult” to gauge how much his words represent the government’s position, said Masashi Kurabe, senior manager at the Bank of Tokyo-Mitsubishi UFJ’s currency trading department.

Also, a scandal over Bank of Japan governor Toshihiko Fukui’s investment in a fund run by a manager arrested on suspicion of insider trading has muddied the outlook, with some politicians calling for Mr. Fukui to resign. That has some analysts projecting that the central bank will wait to change interest rates.

The central bank has said it won’t act until prices, which had been declining, are rising consistently. On Friday, the government said core consumer prices rose 0.6 percent in May, the seventh straight monthly gain.

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