Saturday, August 12, 2000

Japan's central bank raises interest rates

Government officials opposed to increase

By Scott Stoddard
The Associated Press

        TOKYO — Japan's central bank boosted its profile Friday by raising interest rates in the face of government pressure. But the move left many wondering if its assertiveness will spur the nation's budding economic recovery — or sink it.

        The Bank of Japan, the country's equivalent of the U.S. Federal Reserve, voted to boost the interest rate that private banks charge each other from almost zero to 0.25 percent. It was the first time in a decade that the central bank raised rates.

        The higher rates are good news for the many here who keep their savings in bank accounts, where interest rates are generally lower than 1 percent.

        But interest on housing and education loans, for which banks were charging about 3 percent before Friday's boost, will likely rise.

        Reaction to the increase was swift — and mostly negative — especially in regard to its potential impact on the struggling Japanese economy.

        “To be sure, the near-zero in terest rate policy was adopted as an emergency measure, so there was never a question of maintaining it forever,” said Kosaku Inaba, chairman of the Japan Chamber of Commerce and Industry, a leading business group.

        “But we think that the drawbacks of raising rates outweigh the benefits with the economy still in the early stages of recovery,” he said.

        Government officials have insisted that higher rates would stifle the recovery and possibly result in deflation, or a sharp decline in prices that would hurt corporate profits.

        Japan's economy, beset by fall ing consumer spending amid near-record unemployment, is trying to recover from its longest slump since the end of World War II.

        But the Bank of Japan is worried that over-reliance by debt-burdened corporations on easy money could keep them from undergoing the kind of drastic restructuring analysts think is generally needed to secure long-term economic growth.

        Chris Calderwood, chief economist at Jardine Fleming Securities (Asia) Ltd. in Tokyo, panned the increase and criticized the bank for trying to extend its agenda. “It's going to hurt,” he said.


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