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Last Updated: Tuesday, 7 November 2006, 11:05 GMT
Bank of Japan hints at rate raise
Japanese production line worker
Continued economic recovery could lead to a rate raise
The head of the Bank of Japan has hinted that interest rates may rise soon as inflation pressures increase.

"We must not take a long time to adjust policy interest rates," Bank of Japan governor Toshihiko Fukui said during a meeting with business leaders.

The bank left rates unchanged at 0.25% in October, after raising them for the first time in six years in July.

The Bank of Japan said it would gradually adjust monetary policy based on economic and price conditions.

'Price stability'

Japan has been slowly emerging from a decade of poor economic performance, recession and deflation.

Mr Fukui said that "waiting for inflation to build up" would cause sharp swings in the economy.

"Our task is to carefully take action before these conditions appear in order to achieve price stability and keep future economic swings gradual," he explained. Japanese stocks were boosted on Tuesday by Mr Fukui's comments because of optimism that the economy was growing strongly enough to boost corporate earnings despite higher interest rates.

"The biggest point of the speech was that Fukui basically said it would be too late to raise interest rates after prices and the economy start picking up," said chief economist at Credit Suisse Securities Hiromichi Shirakawa.

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