Japan's gradual economic recovery remains intact, central bank governor Toshihiko Fukui said yesterday amid growing speculation about the central bank possibly raising interest rates next week.
"Our country's economy is expanding moderately," Fukui said in a speech at a meeting with branch managers of the Bank of Japan.
"The chances are high that sustainable growth will continue with a favorable circle of production, income and expenditure," he added.
FEW HINTS
Fukui gave few hints about the chances of the Bank of Japan hiking its super-low interest rates from 0.25 percent at the end of its two-day meeting on Thursday, saying only that monetary policy would be decided "appropriately."
"By managing monetary policies appropriately, the Bank of Japan will continue contributing to realizing sustainable growth," he said.
Fukui said that Japan's consumer prices were expected to continue to follow a positive trend.
The Bank of Japan raised interest rates to 0.25 percent in July when it ended over five years of virtually free credit.
FRAGILE RECOVERY
Fukui has made clear his desire to return to a more normal monetary policy but government ministers have voiced concern that the still fragile recovery could falter if rates go up too quickly.
The Nikkei Business Daily reported earlier yesterday that the Bank of Japan is seen to be leaning towards raising interest rates next week, with consumer spending remaining firm and worries of a US economic slowdown receding.
The central bank's basic stance is that as long as the economy is on a long-term expansion track, a quick rate hike will help sustain the recovery, Nikkei Business Daily said.
Although the report did not quote any sources, analysts noted that the Nikkei is often briefed by the Bank of Japan as a way of guiding market expectations about its monetary policy intentions.
OUTSTANDING LOANS
Meanwhile, outstanding loans by Japanese banks last year rose for the first time in 10 years, the Bank of Japan said yesterday, providing another sign that the Japanese economy is on a recovery track.
The average daily balance of Japanese bank lending expanded 1.2 percent from the previous year to ?384.86 trillion (US$3.2 trillion) last year, the central bank said.
It was the first gain since 1996, when the average balance of bank lending rose 1 percent.
The gain was mainly caused by the brisk corporate capital spending on the back of the nation's gradual economic recovery, analysts said.
It also reflected banks' recovery from their bad loan crisis. In the 1990s, Japanese financial institutions suffered huge debts in the wake of the bursting of the "bubble" economy.
Last month alone, the average daily balance of bank lending increased 1.8 percent to ?390.75 trillion from a year earlier for the 11th straight monthly gain, the central bank said.
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