Will Bank of Japan End Ultra Easy Money Policy?

by: Gary Dorsch

A major tug of war over Japanese bond yields is underway between Bank of Japan chief Toshiro Fukui, who wants to raise rates in April, and Japan's Finance Minister Sadakazu Tanigaki, who wants to delay higher JGB rates until the second half of 2006.

Speculation is rife that the BOJ might end its ultra easy money policy that is fueling global inflation in commodities and inflating the Nikkei-225 to a 5-year high. But officials from the ruling LDP party have warned against any premature shift in the BOJ's five-year-old policy of flooding the Tokyo money markets with cheap money, before deflation is eradicated, felling concern about a rift between the central bank and the government.

Tanigaki, in Moscow for a meeting of Group of Eight finance ministers, cautioned on Feb 10th that Japan could not be complacent about the economy. "I think, overall, Japan's economy is moving steadily. Corporate performance is leading to personal consumption and domestic demand-led recovery. We have not overcome deflation fully. The Bank of Japan and the government need to work together."

On Feb 9th BOJ Governor Toshihiko Fukui gave his strongest hint yet that the central bank may soon end its easy policy, saying that from its next board meeting on wards the bank would have to consider even more carefully whether it was time for a policy shift.

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