BOJ to Raise Interest Rates Gradually, Minutes Show

The Bank of Japan will raise interest rates gradually based on developments in the economy and prices, minutes released today show.
``The bank would adjust the level of interest rates gradually in accordance with improvements in the economic and price situation,'' policy makers said at the July 11-12 meeting. Members agreed that their ``basic thinking remained unchanged.''
The bank kept the benchmark overnight lending rate at 0.5 percent at the meeting, which was held before the threat of a global credit crunch compelled central banks, including the Bank of Japan, to inject extra funds into their financial systems. The bank stood pat again on Aug. 23 after the market turmoil clouded the outlook for Japan's economic growth.
Governor Toshihiko Fukui told reporters after last week's decision that keeping borrowing costs too low may spur risky investments, suggesting the bank still plans to raise rates.
``The economy is developing much as the Bank of Japan had expected, and Japanese money markets have worked relatively well throughout the global crisis,'' said Julian Jessop, chief international economist at Capital Economics in London. ``The bank will therefore want to continue to return interest rates toward more normal and sustainable levels.''
The yen traded at 115.57 per dollar at 9:42 a.m. in Tokyo from 115.63 before the minutes were published.
Investors see a 34 percent chance policy makers will raise the key rate at the Sept. 18-19 board meeting, according to Credit Suisse Group calculations based on interest payments.