BoJ links rate hike to US economy's progress
Japan’s central bank chief Toshihiko Fukui expressed concern Monday that a downturn in the US economy could slow global growth, suggesting that the Bank of Japan won’t raise interest rates anytime soon.
By Agencies |
TOKYO: Japan’s central bank chief Toshihiko Fukui expressed concern Monday that a downturn in the US economy could slow global growth, suggesting that the Bank of Japan won’t raise interest rates anytime soon.
“The US economy is widely expected to slow in the fourth quarter this year and the first quarter of 2008 on the back of a continued adjustment in the housing market,” Fukui told reporters Monday afternoon after meeting with business leaders in Nagoya, cenatral Japan.
Fukui said BoJ needs to watch whether the US credit crisis, caused by rising defaults on risky mortgages, puts a dent in consumer spending, suggesting the bank won’t be able to raise rates until it confirms that the US economy hasn’t fallen into recession. Christmas shopping figures will be key to gauge that impact, he said.
The American economy is a vital export market for Japanese auto and electronics exporters. US economic growth may slow to around 1.5% for the next two quarters, he said, down sharply from the 4.9% growth rate in the third quarter. That could put a drag on global growth.
“The global economy may worsen if risks, such as a worsening of the US and European economies, were to materials,” Fukui told the business leaders earlier. Still, Fukui was relatively upbeat about the domestic economic outlook, saying that the subprime mortgage crisis was unlikely to seriously impact the country’s financial system.
“Japanese financial institutions’ exposure to credit markets is relatively small so it appears each financial institution or group can absorb losses sufficiently,” he said. “I don’t think this issue will greatly affect the stability of Japan’s financial system at this point.”
Fukui said the “possibility is high that the Japanese economy will continue expanding,” although he expressed particular concern about weakness among Japan’s small and medium-size companies.
Fukui remains committed to raising rates when conditions permit, but said there is no preset schedule and gave no hint of when the next rate hike could come. The BoJ last raised interest rates to 0.5% in February. “As I said earlier, the monetary environment is very accommodative. If sustainable economic growth with price stability continues, we need to raise interest rates,” he said.
He also highlighted the volatility in global financial markets in recent weeks, saying the central bank needed to carefully watch developments there. Tokyo’s benchmark Nikkei 225 index fell 51.70 points, or 0.33% on Monday, to 15,628.97 points.
“The US economy is widely expected to slow in the fourth quarter this year and the first quarter of 2008 on the back of a continued adjustment in the housing market,” Fukui told reporters Monday afternoon after meeting with business leaders in Nagoya, cenatral Japan.
Fukui said BoJ needs to watch whether the US credit crisis, caused by rising defaults on risky mortgages, puts a dent in consumer spending, suggesting the bank won’t be able to raise rates until it confirms that the US economy hasn’t fallen into recession. Christmas shopping figures will be key to gauge that impact, he said.
The American economy is a vital export market for Japanese auto and electronics exporters. US economic growth may slow to around 1.5% for the next two quarters, he said, down sharply from the 4.9% growth rate in the third quarter. That could put a drag on global growth.
“The global economy may worsen if risks, such as a worsening of the US and European economies, were to materials,” Fukui told the business leaders earlier. Still, Fukui was relatively upbeat about the domestic economic outlook, saying that the subprime mortgage crisis was unlikely to seriously impact the country’s financial system.
“Japanese financial institutions’ exposure to credit markets is relatively small so it appears each financial institution or group can absorb losses sufficiently,” he said. “I don’t think this issue will greatly affect the stability of Japan’s financial system at this point.”
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Fukui said the “possibility is high that the Japanese economy will continue expanding,” although he expressed particular concern about weakness among Japan’s small and medium-size companies.
Fukui remains committed to raising rates when conditions permit, but said there is no preset schedule and gave no hint of when the next rate hike could come. The BoJ last raised interest rates to 0.5% in February. “As I said earlier, the monetary environment is very accommodative. If sustainable economic growth with price stability continues, we need to raise interest rates,” he said.
He also highlighted the volatility in global financial markets in recent weeks, saying the central bank needed to carefully watch developments there. Tokyo’s benchmark Nikkei 225 index fell 51.70 points, or 0.33% on Monday, to 15,628.97 points.
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