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Bank of Japan raises interest rates for first time in 10 years |
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August 12, 2000
TOKYO (AP) - Japan's central bank on Friday announced its first interest rate hike in a decade, defying pressure from government officials who insisted near-zero rates are still needed to nurture an economic rebound. At the end of a marathon meeting that began early in the morning, the bank's nine board members voted to guide the interest rate that private banks charge each other from virtually nothing to 0.25 percent, the BOJ said in a statement. Led by Gov. Masaru Hayami, who had vocally supported a rate hike, the board voted down a request by government representatives to delay the vote for a month. The bank cited Japan's improved economy and the easing of deflationary fears as reasons for the rate hike. It downplayed the significance of the move calling it a "fine-tuniovery and possibly set off deflation, or a sharp decline in prices. The central bank said earlier this week that deflationary fears have abated. The rate hike will likely make it more costly for the government to borrow money to feed massive spending projects that have kept Japan's economy from going under. Analysts noted that raising the rate banks charge each other to about 0.25 percent would be far less damaging for the economy than a loss of BOJ credibility. The BOJ hike was the first in a decade of economic gloom that set in with the collapse of Japan's speculative bubble economy of the 1980s. Ruling party officials including Prime Minister Mori had been saying it was too early to lift rates, while Gov. Hayami has retorted that GDP forecasts of 2 percent growth are inconsistent with a zero-interest rate policy. In a measure of how politicized the ruckus has become, a lower house legislator who has worked closely with Mori's LDP said before the vote that he would seek Hayami's resignation in the event of a rate hike. "I would call for the governor to resign," former Finance Ministry official Kozo Yamamoto told Dow Jones Newswires. "I would also call for getting rid of those board members that supported the decision." Fears a rate rise might hurt the economy caused the yen to fall 1.04 from late Thursday to 108.72 yen in afternoon trading. But Japan's main stock index rose 141.85 points, or 0.89 percent, to 16,117.50. The BOJ could begin as early as Monday to start selling bonds to mop up capital and rein in the amount of funds circulating in the economy, causing banks to raise interest charges when lending to each other. That would have a ripple effect on the rates banks charge to customers. Hayami wanted to raise rates at the bank's board meeting last month, but backed away because of the collapse of major department store chain Sogo Co., which sent jitters through Japan's financial markets. |