Business life: My finance news blog

Expectations that the Bank of Japan will cut interest rates have plunged in the past month as investors bet new Governor Masaaki Shirakawa will maintain a policy of gradually raising borrowing costs.

Investors see a 6 percent chance the bank will lower its key overnight call rate by December, down from 71 percent on March 20, the day Shirakawa became acting chief, according to calculations by JPMorgan Chase & Co. They were around 34 percent last week, when he was appointed governor. Japan's benchmark rate is 0.5 percent, the lowest in the industrialized world.

The appointment of central bank veteran Shirakawa, who has long argued that Japan's rates need to be normalized, reduces the chances of the first reduction in seven years, analysts said. Receding concern that the world's second-largest economy will follow the U.S. into a recession is also damping speculation of easier credit.

“The market is starting to assess and build in the potential hawkishness of Shirakawa,'' said John Richards, head of debt-market strategy for the Asia-Pacific region at RBS Securities Japan Ltd. in Tokyo. “Once the world gets out of recession mode, Shirakawa will be inclined to tighten.''

The yield on three-month euroyen futures, debt derivatives that are sensitive to changes in interest-rate expectations, rose to the highest in four months today. The yield on Japan's five- year note added 4 basis points to 0.895 percent today, the highest in seven weeks.

The International Monetary Fund last week said Japan's economy will grow 1.4 percent in 2008, after saying in January it will expand 1.5 percent. The IMF forecast U.S. growth of 0.5 percent, down from 1.5 percent predicted previously payday advance lender cash advance loan.

Easing Concern

Concern that Japan's economy is faltering eased in the past month, with reports showing export growth quickened, wages rose and companies faced the largest labor shortages in 16 years.

“Japan's economic growth is decelerating, but the pace is much milder than the U.S. and Europe,'' said Chotaro Morita, head of fixed-income strategy research at Barclays Capital Japan Ltd. “Speculation for a rate cut in the market was based on the economy's weakness, and that speculation is being corrected.''

Morita added that investors paring bets doesn't mean a cut is off the table, as the Bank of Japan may need to lower rates if a meltdown in global financial markets requires coordinated action with other central banks.

No Preconceptions

Shirakawa last week said he has no preconceptions about the policy direction because the economic outlook is “filled with uncertainties that could quickly subside.'' The veteran of 34 years at the bank also said providing too much economic stimulus in the short term could hurt long-term growth and has described Japan's monetary conditions as “very accommodative.''

Japan's central bank has kept the benchmark rate at 0.5 percent since doubling it in February 2007. Shirakawa, who was promoted to the top post to fill the bank's first vacancy in more than 80 years, this week said that the impact of the subprime- mortgage crisis on Japanese banks has been limited and that economic growth will probably pick up eventually.

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