Conditions were relatively calm on the Tokyo Stock Exchange, where the benchmark Nikkei 225 closed the day just 0.8 per cent higher at 16,8005.The market turmoil in the US and Europe has had a limited impact on credit conditions in Japan but is likely to make it more difficult for the central bank to proceed with a widely expected increase in interest rates from the current 0.5 per cent later this month, says Nakamoto.
Also on Monday, the Japanese government said second-quarter GDP rose a weaker-than-expected annualised 0.5 per cent in real terms largely due to weak consumer spending. That follows a revised 3.2 per cent increase in the previous quarter.
However, global market instability arising from the US subprime problem is more likely to determine whether or not Japan’s central bank raises rates from 0.5 per cent to 0.75 per cent next week, economists said. The weaker-than-expected GDP “won’t have an impact on the BoJ,” says Hiroshi Shiraishi, economist at Lehman Brothers in Tokyo.
Bloomberg reports that Bank of Japan governor Toshihiko Fukui has signalled he won’t be deterred by a weak GDP report. The bank expects growth to slow in the second quarter, which would not determine the outcome of the August policy meeting, he said on July 12.
The government, however, cited the 10th straight quarter of GDP growth to say that the ongoing economic recovery was intact.
Meanwhile, export strength and a sharp rise in the income account surplus helped Japan’s current account surplus for the first half of 2007 to hit a half-year record of Y12,470bn, up 31.3 per cent.
The trade surplus was Y4,785bn, up 49 per cent, with exports up 12 per cent at Y38,353bn.
Japanese income from investments in overseas securities and payments by foreign employers in Japan, was up 20 per cent to a record Y8,461bn.