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Last Updated: Wednesday, 21 February 2007, 08:07 GMT
Japan ups interest rates to 0.5%
Japanese shopper
Japanese consumer spending has picked up recently
Japan's central bank has raised interest rates to 0.5% following signs of steady growth in the economy.

It said the decision - only its second interest rate rise in more than six years - had been made because Japan's recovery was likely to continue.

Worries about the US and other overseas economies had also diminished, it said.

In July last year, the bank raised the rate to 0.25% following six years of zero interest rates designed to help the economy recover.

Rate pause?

The bank's nine-member monetary policy board voted 8-1 in favour of the latest rise, but said future rises would be made only gradually.

In a statement following the decision, the central bank reiterated that it planned to adjust interest rates gradually.

Many economists now think that another rate rise will not come for at least another six months.

"It reduces the likelihood of further rate hikes going forward," according to Glenn Maguire, chief economist at SG Hong Kong.

Market response

The belief that there is unlikely to be another increase soon sent the yen falling against the dollar and the euro.

The currency had initially risen on the first reports that the Bank of Japan governor, Toshihiko Fukui, had proposed a rate rise, but it changed direction shortly after the decision was announced.

The doubling of interest rates still leaves Japan well below the benchmark rates of 5.25% in the US and 3.5% in the eurozone.

Tokyo's Nikkei share average ended down 0.14% but the broader TOPIX index rose 0.2% to its highest finish in more than 15 years.

Banks have been boosted by hopes that rising interest rates will improve their lending margins.




SEE ALSO
Q&A: Japanese interest rates
14 Jul 06 |  Business
Japanese inflation edges higher
26 Jan 07 |  Business
Asian heads stress currency risk
22 Jan 07 |  Business
No alteration in Japanese rates
18 Jan 07 |  Business
Japan sees further recovery signs
15 Jan 07 |  Business
Japan interest rates stay on hold
19 Dec 06 |  Business
Japanese bosses show confidence
15 Dec 06 |  Business

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