Japan worried about INflation?

The Bank of Japan (BOJ) decided not to raise interest rates and kept its key lending rate near zero. But, according to a Bloomberg News story filed on April 28, 2006, the head of the bank and his eight colleagues were tempted.

Consumer prices in Japan have been rising over the past five months. Last month, said Bloomberg, the BOJ signaled clearly that the time may be near when it would start increasing rates. But, apparently, prices have not risen quite enough to justify the increase just yet. An increase would be the first in five years.

Bloomberg also pointed out that China had raised its key lending rate unexpectedly the day before (April 27, 2006) and both the United States (US) Federal Reserve and the European Central Bank are "tightening credit." If rates rise in Japan, as expected, then it will be the first time in six years that the world's major economies raised rates in unison.

In Japan, core consumer prices (excludes food) rose 0.5 percent in March 2006 compared to the same period in 2005. Japan's economy has been experiencing deflation for the past seven years while expanding at the same time. In fact, since it is likely to continue, the period of expansion will soon be the economy's longest since the end of World War II. Unemployment is at a seven year low.