Feb. 21 (Bloomberg) -- The Bank of Japan raised its benchmark interest rate to 0.5 percent after the world's second- biggest economy expanded at the fastest pace in three years.
Governor Toshihiko Fukui and his policy board colleagues voted 8-1 to increase the overnight lending rate from 0.25 percent, the bank said in a statement today in Tokyo. The benchmark remains the lowest among major economies.
The increase suggests policy makers are convinced rates need to rise to levels that prevent investment bubbles. Higher borrowing costs may discourage investors from borrowing in yen to buy overseas assets, the so-called carry trade that helped drive Japan's currency to a 21-year low against its trading partners.
The Bank of Japan is concerned that the longer it keeps rates so low ``the more it fuels the risk of overstimulating investment and growth,'' said Teizo Taya, who served on the bank's policy board until Dec. 2004 and now advises Daiwa Research Institute.
No Kidding.
Governor Toshihiko Fukui and his policy board colleagues voted 8-1 to increase the overnight lending rate from 0.25 percent, the bank said in a statement today in Tokyo. The benchmark remains the lowest among major economies.
The increase suggests policy makers are convinced rates need to rise to levels that prevent investment bubbles. Higher borrowing costs may discourage investors from borrowing in yen to buy overseas assets, the so-called carry trade that helped drive Japan's currency to a 21-year low against its trading partners.
The Bank of Japan is concerned that the longer it keeps rates so low ``the more it fuels the risk of overstimulating investment and growth,'' said Teizo Taya, who served on the bank's policy board until Dec. 2004 and now advises Daiwa Research Institute.
No Kidding.
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