Political pressure blocks rate hike?

Jan 18, 2007 (AFP) – The Bank of Japan decided against raising its ultra-low interest rates Thursday in the face of fierce political pressure, backing down in a standoff that has put its credibility into question. After a week during which government officials had lined up to publicly urge the central bank not to gamble the economy’s future with a premature rate rise, the BoJ left its key rate steady at 0.25 percent.

But the policy board was split for the first time in almost a year as three out of the nine members voted against the decision, which was widely seen as a case of the BoJ caving in to government pressure.

The yen slumped to the lowest level for almost four years as investors, particularly outside Japan, fretted that the central bank’s hands might also be tied in the future by political constraints.

The dollar rose to 121.46 yen, levels last seen in March 2003.

“Basically the politicians have hijacked a pretty well communicated agenda and timetable by the BoJ,” said Stefan Rheinwald, head of research at the investment bank CLSA Asia-Pacific Markets.

“I think it’s an unnecessary mess. It will harm sentiment,” he warned. “Everybody will see that the reason for the delay is politi