Japan raises interest rates

Press, 18 April 1979, Page 22

Japan raises interest rates

‘ NZPA-Reuter Tokyo Japan’s Central Bank has raised the country's basic interest rate for the first time since 1973 m a move aimed at curbing inflation, and boosting the yen. I The Bank of Japan ended weeks of political coniro- ■ versy. by a .75 per cent increase. to 4,25 per cent, in I the official discount rate. I which is what it charges for: i loans to commercial banks. I The discount rate determines! [virtually all other major [credit costs. Politicians and Govern- . ment ministries had warned the Central Bank that tight[ening credit would invite I criticism from the United /States, and Europe about : Japan’s economic policies, [since higher interest rates usually spell slower econojmic growth. The Centra! Bank argued . that Japan faced a serious ! and damaging revival of inflation brought on by rising commodity prices, and the latest price increase by oilexporting countries. Wholesale prices have increased .9 per cent in each of the last two months, with the March rise the fifth monthly gain. [ Bank of Japan officials: have argued that Japan

i might be approaching a .period of inflation, like the; done which occurred after the! -Arab oil embargo in the I early 19705, when prices shot! :[up more than 20 per cent. By reversing the easy credit, higher growth policies I . it set in motion in April, ; ■ 1975 with the first of eight’ interest rate reductions, the; i Central Bank is hoping more; . costly loans will keep domes-: • tic demand from rising too 1 .; rapidly, and putting addi- ; i tional pressure on prices. I Bank officials also believe; ! the higher interest rates will; - eventually aid the yen. which I:has been declining against: ! the United States dollar by I (making Japanese fixed inter-' I lest securities more attrac-; :[ tive. . i The United States dollar! i closed on Monday at 216.11 • yen, up from 215.3 yen on I Friday, putting it within i striking distance of its 10- ; month high level of 216.8 yen • reached two weeks ago. ; The continuing strength of : the United States dollar, which hit a low of 175.5 last October, worries Japanese Government economists, who i fear it may spark a resurg-i ence of Japan’s export drives' i later this year, and this' could ruin the Government's I [pledge to sharply reduce; i: Japan’s large trade surplus.