Tell me wh you bought there please.

Take Care !


/Smooth


The Bank of Japan is widely expected to raise interest rates again by another quarter point on Thursday this week. That would raise the key Japanese rate to 0.5%. It doesn't sound like much, but it would actually be the highest rate since 1995.

Data on machinery orders beat market expectations, further strengthening the case for a rise. Private sector companies increased their capital spending in November for the second month in a row, for the first time since late 2005.

However, a hike is by no means a done deal. The government isn't keen for the Bank to hike rates, and the BoJ has come under a fair amount of political pressure, which could well sway the decision - the BoJ is ostensibly independent, like most other developed market central banks, but the Japanese government is a lot more vocal than its counterparts in making its feelings known on central banking matters.

Business confidence is strong; unemployment is still falling; and consumer confidence is recovering from weakness in the third quarter of 2006. But wage and price inflation are still weak. Consumer price inflation grew at an annual rate of just 0.2% in November, while wages were actually down 0.2% on the same month in 2005.

So the Bank may not hike this week. But even if it doesn't, a rise will almost certainly come next month, and most currently expect rates to end the year at around 1%.

But it's important for investors to remember that higher rates - unlike in the UK and most of the rest of the world - should not be something for consumers or businesses in Japan to worry about. As Julian Jessop of Capital Economics points out: "Many households would actually welcome higher rates, because of the boost to savings' income. Rates could certainly rise further without any real damage to the corporate sector, which is in robust health."

Rate hikes in Japan are just a sign of the economy returning to normal after more than a decade-long slump. And make no mistake, the economy is returning to normal - companies have large backlogs of unfulfilled orders; and wages look set to pick up. According to Bedlam Asset Management, unions at telecoms group NTT say they plan to push for wage hikes in April - that would be the first time in six years. Nippon Steel has already said it will raise salaries for the first time in seven years, also in April.