Pressure Continues on Bank of Japan

by: Gary Dorsch

Japan's Prime Minister Koizumi and Finance Minister Tanigaki kept up its pressure on the Bank of Japan on Tuesday, to delay the end of its five-year experiment of fighting deflation by throwing huge amounts of free money into the banking system. Tanigaki said he wanted to see how the BOJ viewed prices and the economy -- tacitly warning against becoming overly optimistic about current conditions. "There are various ways we could respond, but we have to look at what the BOJ will present."

The Finance Ministry is particularly concerned that an eventual rise in interest rates would raise the government's borrowing costs and hurt its attempts to trim public debt, which at 150% of gross domestic product is among the worst in the industrial world. Prime Minister Junichiro Koizumi warned that the BOJ could not make a mistake and derail Japan's hard-won economic recovery.

The economy grew at a blazing 5.5% annualised rate in the final three quarters of 2005. "If the lifting of monetary easing fails, it (the BOJ) cannot go back again. I am sure a wise decision will be made," he told a parliamentary committee at which BOJ Governor Toshihiko Fukui was present.

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