Wed, Feb 21, 2007 - Page 6 News List

Japan says household spending still weak

AP , TOKYO

Japan's economy is recovering from stagnation, but household spending is weak, the government said in its monthly economic report, indicating the central bank might be urged to keep a key interest rate steady at its monetary policy meeting starting yesterday.

The Cabinet Office left its monthly appraisal of the economy unchanged in its February report released late on Monday, saying, "The economy is recovering, despite some weakness in consumption."

The wording has stayed the same for three months.

The report suggests the government will continue calling on the Bank of Japan to keep a key interest rate unchanged at 0.25 percent at the monetary policy meeting yesterday and today, despite recent robust economic data.

Japanese stocks ended flat yesterday amid divided investor opinion over whether the Bank of Japan would raise interest rates today, after its two-day meeting.

The benchmark NIKKEI 225 index shed 0.97 point, or 0.01 percent, to finish at 17,939.12 on the Tokyo Stock Exchange. On Monday, the index touched its highest close since May 8, 2000.

During yesterday's session, the broader TOPIX index, which includes all shares on the exchange's first section, rose to an intraday high of 1,784.20 at one point, the highest since Nov. 19, 1991. At that time, the NIKKEI average was trading around 23,000. The TOPIX closed at 1,782.73, up 0.16 percent from Monday and the highest since April 7 last year.

In currencies, the US dollar was trading at ¥119.80 at 5:50am GMT on Tuesday, up from ¥119.56 late on Monday in Frankfurt.

The euro rose to US$1.3182 from US$1.3135.

Last week, the government said Japan's economy grew at a stronger-than-expected annual pace of 4.8 percent in the fourth quarter -- the fastest rate in almost three years -- spurring market expectations of an early interest rate hike to 0.5 percent.

But top government officials have repeatedly raised concerns that a premature rate hike could choke off the recovery.

"I trust that [the Bank of Japan] will make an appropriate decision based on a comprehensive assessment of prices, the economy and the risks involved," Prime Minister Shinzo Abe told reporters late on Monday.

Japanese Economy Minister Hiroko Ota echoed Abe, saying, "I think the Bank of Japan will make a judgment after thorough analysis of economic and price data."

The central bank is independent, but political opinion has been known to influence past policy. Last month, the bank held rates steady following warnings from government officials, countering market expectations in previous weeks.

Monday's report reiterated that industrial production "is increasing moderately," while corporate earnings were "improving" and business investment "is increasing."

Employment is "improving on a broader basis," the report said, also using the same language as the previous month.

The Cabinet Office also stuck to its view that exports "have been flat," pointing to decreasing Asia-bound shipments of general machinery and a lack of growth in exports to the US.

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