Bank of Japan to tighten monetary policy

The consensus among economists is that Japan has clearly emerged from a decade-long recession, which is a conclusion predicated on a bevy of economic data. The Bank of Japan is now in the unenviable position of having to raise interest rates to head off possible inflation, without shocking the economy back into recession. In a recent poll, a majority of economists indicated their belief that the rate hikes will be effected before the end of the year. While the Yen may not derive direct support from the rate hikes, it will likely benefit from an inevitable decline in carry trades, in which currency traders borrow Japanese Yen to finance purchases of other currencies. Reuters reports:

“Japanese rates are still going to remain extremely low - below 2 percent next year -- and it will still be the lowest, notwithstanding the Swiss franc.”

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