Tuesday, June 03, 2008

An analyst's report

The recent run-up in oil prices has increased the downside risk to growth and an upside risk to inflation. However, the Bank of Japan (BoJ) has shown its intention to pay more attention to growth concerns than to inflation risks. A further rise in oil prices could have a serious negative impact on corporate profits. 

How business investment plans will evolve in this context will be an important key to the BoJ’s assessment of the economy. We expect the BoJ to maintain the status quo in policy rates at least over the next year. 

Anemic growth in the United States and the spillover to the rest of the globe, along with a downside risk to the domestic economy emanating from higher oil prices, will likely continue to dissuade the BoJ from hiking rates.

Citigroup - KM

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