As spreading fears of a credit crunch linked to the U.S. subprime mortgage crisis cause turbulence in global financial markets, expectations of an August rate increase by the Bank of Japan have dropped.
Before the market confusion, most economists had projected that the BOJ would decide to raise its key rate from the current 0.5 percent during the Aug. 22-23 policy meeting. Some say a credit-tightening move at the upcoming policy meeting may still be possible, but many are now of the belief that any raise in interest rates will likely be delayed until September or later.
The European Central Bank, the U.S. Federal Reserve and the BOJ have all poured funds into money markets since last Thursday in order to prevent any panic in the markets stemming from the subprime loan worries and losses by financial firms and hedge funds on their holdings of mortgage-backed and asset-backed securities.