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This Week’s BOJ Watch…

There has been quite a bit of economic news coming out of Japan over the past few days, but precious little time to write about it during the run up to O-Bon, when things just get a little busy. So here’s a quick roundup of what’s going on with the Bank of Japan:

One thing that caught my eye this week was a quote from LDP Secretary-General Hidenao Nakagawa, who is set to step down from his job soon and seems to be looking for anyone to blame for the ruling party’s embarrassing defeat in last month’s Upper House election. On Wednesday, Nakagawa told reporters, “[The defeat] because we have not been able to achieve our target for nominal gross domestic product growth, and the BOJ’s monetary policy may be responsible for that.”

This is coming from the guy who was seen on TV in January, leaving the bank on the final day of its Policy Board meeting with a big smile on his face and later saying, with a straight face, that politicians do not pressure the BOJ. Uh-huh…

Slightly further down the food chain, Economic and Fiscal Policy Minister Hiroko Ota is still holding the opinion that the BOJ should not raise the interest rate at its meeting this month. BOJ Governor Toshihiko Fukui told reporters on Tuesday, “It’s true that the upward pressure on prices is weak, despite the tightening of the supply-demand balance…A further slowing down of adjustments to interest rate levels would cause a distortion in the allocation of resources.”

Those two sentences may not seem to make much sense together, but they were the best I could do to patch two sentences from one press conference together. Just send Mr Fukui a picture of yourself standing on your toes and he’ll be happy, it seems.

The Economic Planning Association released a poll on Tuesday saying that 70% of economists who responded believe that the rate will be hiked in August, despite lackluster GDP data in the first quarter of financial 2007. The Association believes that 60% of the impact of a rate hike has already been figured into market pricing.

From December, the Bank of Japan’s Corporate Services Price Index will be updated, with a bit more weight given to internet technologies services. The bank postulates that the newly weighted index will come in slightly lower than the current system.

Tomorrow we’ll take a look at this week’s economic reports…

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