OECD-IMF Report: Japan should not raise interest rates just yet

May 25, 2007
By Ken Worsley

On May 21, the OECD released a report stating:

Low yields result from excess global saving and liquidity. They risk pushing leverage and equity prices in parts of the corporate sector to excessive levels…Two major prices in the world economy worth noting in this respect are the near zero interest rates in Japan and the fixed exchange rate for the reminbi.

In other words, Japan’s low interest rates are a bad thing, as they feed the carry trade and the massive overload of leverage that currently exists in the global economy. Ok…So, were they just kidding? Today, a very different story emerged…

In its “Economic Outlook” report released this afternoon, the OECD had this to say:

The Bank of Japan should not raise the short-term policy interest rate further until inflation is firmly positive and the risk of renewed deflation becomes negligible.

The OECD believes that Japan will finally defeat deflation in 2008, when consumer prices are forecast to increase by 0.3%, after being expected to decrease by 0.3% this year.

Filed Under Consumer Price Index, Economic Reports, Interest Rates