While most developed nations are already in an interest rate-raising mode or are expected to hike rates soon, Japan is still sitting on the bench in this arena. Japan’s overnight call rate currently stands at zero percent and analysts don’t expect a shift anytime soon.
“Well into 2005, it doesn’t seem like a shift in the zero-rate policy will happen,” Lynch says. “They would need positive inflation data in Japan over a sustainable period before they would raise rates.”
“We think they are not willing to shift policy until they are convinced they are out of the deflation trap,” Glassman added.
This is seen as a negative factor for the yen, especially from an interestrate differential perspective.
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