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Tue, Dec 26, 2006 - Page 10 News List

Bank of Japan governor predicts more growth

AFP , TOKYO

Bank of Japan governor Toshihiko Fukui yesterday forecast the Japanese economy will stay on the right track next year but signaled caution on any swift rise in super-low interest rates.

"The Japanese economy is forecast to maintain sustained economic growth through the next fiscal year, while gains in consumer price rates will widen," Fukui said in a speech in Tokyo before top business leaders.

Last week, the government predicted 2 percent growth in the year to March 2008 in real terms, the sixth straight year of expansion and a notch above the revised-down 1.9 percent estimated for the current year.

"Concerning the perspective for the management of monetary policies, we will maintain easy monetary policies with extremely low interest rate levels for the time being," Fukui said.

"While doing so, it is necessary to adjust interest rate levels in line with a change in the economy and consumer prices," he said.

"However, we don't have in mind any certain levels of policy interest rates or any timing for a change," he said. "We want to make a decision seen to be the best for the Japanese economy."

The market is braced for a rate hike early next year after a series of hawkish remarks from the central bank chief, who has warned of the risks of leaving borrowing costs at their current levels for too long.

But the market has increasingly bet against a rate hike next month after the Bank of Japan unanimously kept the benchmark cost of borrowing at 0.25 percent last week.

The Bank of Japan raised interest rates to the current point in July when it ended its unorthodox five-year policy of keeping borrowing costs at effectively zero in a bid to stimulate the economy.

Japanese Prime Minister Shinzo Abe appealed yesterday to Japanese business leaders to spread the wealth amid growing concern that the economic recovery is not trickling down.

Polls have shown that an overwhelming majority of Japanese are concerned about income disparity, even as the economy is in the midst of its longest post-World War II expansion and many companies report record profits.

Abe, who took office in late September, asked corporate leaders to look to individuals in an end-of-the-year address to Japan's influential business lobby.

"Japan's economy is now continuing to expand but people do not appear to be sharing in it," Abe told the Japan Business Federation.

"I would like you as company executives to shift your high earnings to individual households. It is necessary to build an economy in which everyone can share the benefits," he said.

Abe supported the free-market reforms of his predecessor Junichiro Koizumi but has signalled his first priority will be on boosting growth -- in which consumer spending is still lagging.

His Cabinet on Sunday approved an annual budget marking the first rise in government spending in two years.

He reiterated his stance that Japan can achieve greater growth by breaking down trade barriers.

"It is necessary to bring Asia's growth to Japan. For that purpose, we have to open up our country. Japan must push for economic partnership agreements, free trade agreements and for the World Trade Organization," he said.

Japan has been increasingly seeking bilateral trade pacts amid the collapse of global trade liberalization negotiations.

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