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Mar. 3, 2007 For years investors have been using Japan ’s low interest rates (zero percentage until recently) to great advantage, investing in higher yielding instruments such as the debt in countries as New Zealand . This process is called the “carry trade” and many think it has been part of the impetus for all of the money floating around in the world markets. Recently Japan has decided to raise interest rates and in the last year have bumped up their interest rates twice. The rates now stand at half a percent, with two quarter point increases over the past several months. Many traders are concerned that this free ride on real cheap interest is coming to an end. They need not worry, however. A surprising step will be taken in the next few months, when Japan has to cut rates again. Why? A slowdown. As noted by Bloomberg, Bank of Japan Governor Toshihiko Fukui acknowledged the possibility that core consumer prices may even turn negative after his policy board voted to raise interest rates last week. Zero inflation may fuel government opposition to further rate increases in the lead up to upper house elections in July. ``With core prices likely hovering around zero for some time, the bank would have difficulty explaining why a hike is needed,'' said Azusa Kato, an economist at BNP Paribas in Tokyo . ` Additionally, Japan ’s industrial production fell by 1.5% in January, the most in almost three years. Glenn Maguire, Societe Generale SA’s chief Asia economist, pointed out that the industrial production data “is somewhat of a concern and it suggests the Bank of Japan’s move last week was definitely a high risk move.” Did you get that? Raising the rate was a “high risk move.” And Fukui ’s concern about consumer prices turning negative was realized when the CPI, stripped of energy prices, fell 0.2 percent, the 13th straight month of decline. That’s right – 13 straight months. Financial Times points out that the Bank of Japan could face “a few tricky months as it tries to defend its policy of gradually tightening rates in the absence of any discernible inflationary pressure. Nobuyuki Nakahara, a former BOJ member, said that any sign the economy was faltering would put the bank under extreme pressure. And indeed it will. So much pressure, that to the surprise of many, Japan will cut rates at some point this year. You heard it first here. ------------ About the author: Dwayne Hines, Certified Personal Trainer, currently has 12 books selling in major bookstores and writes for major magazines such as Physical and FitnessRX. Email Dwayne Hines: dhines@cpu-net.net Comment on this article here! ------------ All articles are EXCLUSIVE to Useless-Knowledge.com. Please link to this article rather than copying and pasting it onto your site (which would be unauthorized and illegal). |
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