Views are split over whether Japan’s central bank will decide to tighten credit because of recent robust economic growth, or will opt instead for caution and forego the move.
The state of Japan’s economic recovery and the lingering danger of falling prices are among the factors that the Bank of Japan is studying at a two-day meeting scheduled to end Wednesday.
The decision was split at the last monetary policy board meeting in January, when the bank kept its benchmark interest rate unchanged at 0.25 percent.
Recent economic indicators are sending mixed signals. Credit Suisse put the chance for a rate hike at 59 percent.
Last week, the government said Japan’s economy grew at a stronger-than-expected annual pace of 4.8 percent in the fourth quarter _ the fastest pace in nearly three years. But the government also left its monthly appraisal of the economy unchanged in its February report, released Monday, warning about weak consumption.
Determined to wrest the world’s second largest economy out of a decade-long stagnation, the Bank of Japan kept rates at virtually zero since March 2001. The raise to 0.25 percent from zero in July last year was the first hike in six years.
One major concern is deflation, the downward spiraling of prices that plagued Japan during its slowdown.
Consumer prices have been inching up in recent months, but top government officials still say deflation remains a threat and have urged the bank to hold off on raising rates so as not to quash the economic recovery.
Japan’s core consumer price index, which excludes food, rose 0.1 percent in December from the same month the previous year, in its seventh straight monthly rise, but the increase was less than the 0.2 percent gain in November.
Worries are growing that prices could fall in coming months, reflecting a recent decline in once-soaring oil prices.
Another cause for concern is the perception that the bank caved in to political pressures in deciding against a rate hike last time.
Although officials say the Bank of Japan is independent, the view is widespread that central bank officials take note of comments by top ruling party politicians, who often warn against premature credit tightening, citing the risk that the economy could stumble.
If the economy runs into trouble after a rate increase, which has happened before, the central bank could be intensely criticized.