Saturday, March 11, 2006

BoJ switches policy and calls end to deflation
David Pilling
Financial Times

The Bank of Japan (BoJ) made an announcement declaring that its loose monetary policies which were initially employed to ward off deflation, were officially over. This announcement is seen as a response to the Japanese economy finally "returning to normality" after spending approximately 15 years in the "doldrums." In recent times, the demand for Japanese goods has increased rapidly, with China and the United States being the primary drivers for this demand. This increase in demand has in turn led to the robustness of the Japanese economy.

However, the tightening of monetary policy will not begin immediately; interest rates will be maintained at 0% for "several months." While politicians still fear that it might be too early to eschew loose monetary policies, the BoJ is firm in its resolve. In response to the BoJ's announcement, Japan's primary stock market, the Nikkei average rose 2.6%.

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