by Leika Kihara
(Reuters) Bank of Japan Governor Masaaki Shirakawa distanced himself on Friday from the hawkish tone of U.S. and European central bankers, and signalled slowing economic growth was still a key factor in deciding interest rates.
After keeping rates steady at 0.5 percent as expected, Shirakawa acknowledged that the rising global risk of inflation had prompted the U.S. Federal Reserve and the European Central Bank to deliver unusually candid warnings to markets this month.
But he said it was equally important to monitor the risk of slowing economic growth in Japan, with financial markets still bruised by a credit crisis weighing on the global economy.
My take is that over the years voters repeatedly show a larger dislike of inflation vs unemployment. They would rather have a slow down and rising unemployment than high inflation. That’s why the politicians charge the CB with controlling inflation. Inflation will get them kicked out of office even faster than unemployment will.
If the BOJ members ‘allow’ inflation and doesn’t hike rates to fight it (that’s what they all think fights inflation), I would expect the politicians will replace them members who will hike.