New monetary strategy from Japan

Japan’s central bank has altered its monetary policy for the first time in five years. In a move that reflects the country’s economic upturn, the bank’s board has pulled the plug on its long-running strategy of keeping interest rates close to zero. Prime Minister Junichiro Koizumi had urged caution, warning the bank it could not afford to derail the hard-won rebound.

“There are signs of deflation ending,” he said. “But I am wary about whether it has been beaten.” In a nod to concerns about fallout for world markets and the domestic economy, the bank has said short-term interest rates will remain around zero for now. Tokyo share prices extended earlier gains and the benchmark Nikkei average closed up over 2.5 per cent amid relief that uncertainty was over.

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