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Japan Raises Official Lending Rate With AM-Dollar-Gold

May 30, 1989

TOKYO (AP) _ Japan’s central bank announced Tuesday it will raise its official discount rate by 0.75 percentage points to 3.25 percent, in the first increase in the key rate in almost a decade.

Bank of Japan Governor Satoshi Sumita said the decision to raise the rate effective Wednesday resulted from the bank’s desire to stem inflation and strengthen the yen, which has fallen against the U.S. dollar in recent months.

Commercial bank interest rates will rise in mid-June, officials said.

Sumita told a news conference that the rate hike was a ″precaution″ to stem inflationary threats and stabilize prices.

The discount rate, the interest rate the central bank charges commercial banks, has stood at 2.5 percent - the lowest level of any industrialized nation - since February 1987.

Finance Minister Tatsuo Murayama called the bank’s decision ″a timely measure″ and said Japan should continue to watch prices, ″especially the effects of the lower yen exchange rate and higher oil prices.″

Eishiro Saito, chairman of the powerful Japan Federation of Economic Organizations (Keidanren), said the rate hike was unnecessary but perhaps unavoidable ″because of the need to stabilize exchange rates and maintain coordination with other countries.″

The long-term prime lending rate is expected to rise by 0.20 to 0.30 percentage points in late June, analysts say.

Rates on Japan’s overseas loans may rise as well, although low-interest development loans are less likely to be affected, said a Bank of Japan official who spoke on condition of anonymity.

Hirokazu Yoshida of Sanwa Bank said the increase would have little impact on currency trading because the market had been well prepared by media speculation about the rise.

″Even when the speculation first began, it didn’t give much of a psychological boost to the yen,″ he said. ″If it didn’t work then, it won’t work now.″

Finance Minister Murayama said hikes in commercial bank interest rates would go into effect June 19.

Money in regular savings account will earn 0.38 percent interest per year, up from 0.26 percent, he said.

In recent years the Bank of Japan has followed a policy of low-interest rates to encourage economic growth and slow the earlier rapid appreciation of the yen.

The discount rate peaked at 9.0 percent in 1980 in an attempt by thebank to halt skyrocketing consumer prices during an inflationary wave.

Since then, the bank consistently lowered the rate until the decision on Tuesday.

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