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Sat, Aug 12, 2006 - Page 10 News List

Fukui says no timescale for rate rises

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A female shopper walks before a department store in Tokyo yesterday. Japan said its economy grew by a fraction of its recent breakneck pace in the three months to June as slowing US demand offset strong domestic consumption, but it remained upbeat about its recovery.

PHOTO: AFP

The Bank of Japan has no predetermined time for raising interest rates, central bank Governor Toshihiko Fukui said.

"While we don't rule out the possibility of an additional rate increase this year, that doesn't suggest that we will raise rates [again in this year]," Fukui said yesterday.

"Our rate policy is extremely open and we don't have any preconceived notion [about the timing of a rate increase]," he said.

The central bank's policy board voted unanimously to keep the key interbank overnight lending rate at 0.25 percent at the end of a two-day meeting yesterday. The bank raised the key rate last month from near zero percent, its first rate increase in almost six years.

Fukui reiterated that interest rates will stay at very low levels for some time and adjustments will be "gradual." The timing of further rate adjustments depends on developments in prices and the economy, he said.

Japan's economic growth slowed to a 0.8 percent pace in the second quarter, the Cabinet Office said yesterday, as firms depleted stockpiles to satisfy accelerating consumer and business spending.

Two members of the policy board, Miyako Suda and Atsushi Mizuno, have said since last month's rate increase that the chance of raising borrowing costs again this year shouldn't be ruled out.

Fukui said the policy makers made the comments because they might have been concerned his remark last month that the bank won't raise rates "consecutively" could have been interpreted as ruling out further rate increases this year.

The Japanese economy has so far moved in line with the bank's prediction made in its semi-annual economic report released in April, Fukui said. The bank will push for interest-rate adjustments at a gradual pace if the economy grows at the forecast rate, the governor said.

GDP figures for the second quarter confirm the economy is growing, buoyed by steady capital investment and consumer spending, he said. Business investment has been stronger than the bank predicted, though it hasn't become excessive, he added.

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