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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7713)	3/20/2007 5:59:18 PM
From: John Pitera	Respond to of 33421

BOJ Fukui says will watch land prices, forex Tuesday, March 20, 2007 3:55:00 AM (GMT-06:00) Provided by: Reuters News (Adds Fukui remarks, background) By Leika Kihara TOKYO, March 20 (Reuters) - Bank of Japan Governor Toshihiko Fukui said on Tuesday rising land prices and currency rates are among the factors that could affect monetary policy, although he offered few clues on the timing of the next rate hike. In a news conference held after the BOJ's widely expected to decision to keep rates on hold, Fukui maintained his upbeat view on the U.S. economy and shrugged off recent volatile financial market moves as a healthy correction. He kept mum on the timing of the next rate hike, repeating that the BOJ will gradually adjust interest rate levels by closely examining economic and price developments. Financial markets did not react much to Fukui's remarks or to the BOJ's earlier decision, made unanimously, to keep its key policy rate unchanged at 0.50 percent. The central bank raised the overnight call rate target from 0.25 percent last month by an 8-1 vote, judging that the economy would stay on track for steady growth with prices seen in an uptrend. But consumer price growth ground to a halt in January, casting doubt over the BOJ's scenario that an upward trend in prices would allow it to gradually raise interest rates. Fukui said year-on-year growth in the core consumer price index may turn slightly negative in February or March due to recent falls in crude oil prices, which in themselves are "not necessarily negative for the economy." "But in guiding monetary policy in a forward-looking manner, what is important is whether the CPI would maintain its upward trend in the long run," Fukui said in the news conference. "There is no mistake in saying that the (upward) trend in prices will strengthen" as the nation's supply-demand gap tightens, he said, signalling that any near-term falls in consumer prices would not directly affect monetary policy. Fukui said that while the focus of monetary policy is on the outlook for the economy and prices, the central bank also needs to keep an eye on rising land prices and on foreign exchange movements. "The speed of rises in land prices in some areas of big cities seems to be accelerating," although taken as a whole land price moves are not excessive, he said. Recent government surveys have shown land prices in Japan are finally rising after persistently sliding since the bursting of the "bubble economy" in early 1990s, with gains particularly strong in Tokyo and other big cities. Many analysts expect the government's closely watched survey on nationwide land prices for 2006, due out on Thursday, to offer further evidence that Japan is pulling out of asset deflation. HEALTHY MARKET CORRECTION The BOJ has vowed to raise interest rates gradually if the economy and prices move in line with its scenario. But some within the bank worry that keeping rates low for too long could overheat the economy and spur excessive investment. Some analysts said Fukui's latest reference to land prices may be a sign the central bank will focus more on rising property prices in arguing for further rate hikes. <?i> "It appears what he has in mind is to keep vigilant against a possible asset price bubble...and use it as a basis for the next interest rate hike, which will probably come after an upper house election" in July, said Yasunari Ueno, chief market economist at Mizuho Securities. Fukui played down recent jitters over the outlook for the U.S. economy, saying it is on track to achieve a soft landing, with consumption not affected much by falling housing investment. While there are concerns over the subprime mortgage crisis, the size of the market is not seen as big enough to threaten the U.S. economy, he said. On the recent turmoil in global financial markets, Fukui said that while its impact on the world economy needs to be closely monitored, it was likely a healthy correction as investors re-assess their appetite for risk. "We need to calmly monitor whether moves in financial markets will have an impact on the real economy," Fukui said. Global equity markets had fallen and the yen had rallied since late February as jitters over the U.S. economy prompted investors to trim risk exposure and unwind yen carry trades, in which investors sell the low-yielding yen and buy higher-yielding currencies and assets.