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BOJ: No interest rate hike at this time

January 18, 2007
By Ken Worsley


The first headline in Japanese I came across: 利上げ見送りを決定 - 日銀、景気点検を継続　(Decision: Rise in Interest Rates Seen Off - BOJ to continue monitoring business conditions).

So, the BOJ has not decided to raise rates at this time. At the close of their policy meeting, the governors voted 6-3 against a raise from the current 0.25% overnight call rate.

Then I saw a Kyodo headline in English: BOJ holds off on rate hike by majority vote amid political pressure. The byline to the accompanying photo of BOJ Governor Toshihiko Fukui? BOJ chief Fukui denies political pressure in rate decision.

One supposes that they’re hedging their bets, but with a headline like that, it seems as though they don’t trust Fukui. We’ve discussed the ‘political pressure’ on the Bank of Japan here, and the fact that it was hinted at in public means there was most likely a lot more going on behind the scenes.

Bloomberg brings us a quote from Noriko Hama, a professor of economics at Doshisha Business School in Kyoto:

The impression that they caved to political pressure is unavoidable. It’s not a bad decision, given the statistics, but it certainly does not look good for the BOJ.

I disagree, but who the hell am I? I think it would look much worse if they had raised rates. The BOJ would have come across as an impatient child. And, as we all know, they’ll always have a second chance to make that mistake.

And from Maki Shimizu, an interest-rate strategist in UBS Securities Japan Ltd:

Three board members voted against the decision, leaving the possibility that more members may vote for a rate increase next month.

Wow! Thanks for the lesson in probability. David Hume must be happy.

On a more serious note, here are the words of BOJ Governor Toshihiko Fukui, patched together from various sources:

Our decision this time is solely based on our careful examinations of economic and price conditions. We never discussed factors other than those conditions.

We basically share an outlook that Japan’s economy and price levels will see upward trends, but slightly differ on the need to wait for a while and seek more economic data that will support such a projection.

We have to screen various economic data and weigh their impact on the economy. Even though a specific indicator turns out to be strong, it will not immediately lead to changes in our monetary policy.

The developments in Japan’s economy have so far deviated slightly downward from the outlook.

Our approach is future-oriented, but nonetheless, we focus on economic data at present and of recent past.

I do not especially see the current rate levels in Japan as a disrupting factor in the global market.

Filed Under Bank of Japan, Economics, Inflation, Interest Rates 

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Comments

4 Responses to “BOJ: No interest rate hike at this time”

  1. JS on January 19th, 2007 2:13 am

    Well, the government’s ‘non-pressure’ was all over the evening news. I suppose they just have to say there was none so the western media can keep thinking that there’s an independent central bank operating in Japan.

  2. Ken Worsley on January 19th, 2007 8:38 pm

    Ironically, Fukui’s the one who desires to bring Japan back to monetary ‘normalcy,’ if not normalcy in terms of independence from the government (ahem, the Liberal Democratic Party, or more accurately, the Cabinet Office). He has tried to assert more independence than those before him, but I think this decision makes two things clear:

    1) The Cabinet Office still holds quite a bit of sway. This vote looks as though it was conciliatory; the previous two had been unanimous for holding rates steady, despite rumors they would be raised. This vote went 6-3, which shows the BOJ is pushing for something.

    2) There will be a fight down to the Upper House elections this summer. The LDP does not want to see the rates raised in the name of ‘normalcy’ or Fukui’s legacy. They want to win that race, and a rise in the rates could kill them, whether through real or perceived consequences.

  3. Greg on January 19th, 2007 10:25 pm

    The developments in Japan’s economy have so far deviated slightly downward from the outlook.

    Not a good sign. They don’t seem to be setting their sights too high these days.

    About Fukui being independent: hogwash. He’s the LDP’s little boy. Might be difficult at times, but he’ll stay in line. He stayed on after the Murakami thing, so you know they want him there. He’s not much better than Hayami or Matsushita were in terms of being independent from the government.

  4. Ken on January 20th, 2007 11:27 am

    Greg, I agree with you for the most part, though I think it’s more complicated than that.
    Fukui knows that when he’s in a room full of central bankers, there is a perceived line between them and himself.

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