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Tuesday, July 3, 2007

Yes, low rates can hurt growth too...

The BOJ is concerned that maintaining low rates for a long period of time will have negative economic consequences.

" Failing to raise rates soon "could cause large swings in economic activity and inflation,'' Deputy Governor Toshiro Muto said in a speech in Tokyo today. Fellow board member Kiyohiko Nishimura said "to stand pat for a long period of time is not a prudent strategy." "

Talking tough and even raising rates won't adversely affect the carry trade as the yield gap is still rising between high yield currencies and the Yen.

" "The Bank of Japan will probably raise interest rates in August, or maybe in September,'' said Masuhisa Kobayashi, chief Japan bond strategist at Barclays Capital in Tokyo. "Judging from the strength of the economy, however, there won't be any surprise if the bank attempts to raise rates this month. "
Source: Bank of Japan Policy Makers Say Keeping Rates Low Hurts Growth (http://www.bloomberg.com/apps/news?pid=20601068&sid=ayq3rov59ldM&refer=economy)