Bank of Japan governor Toshihiko Fukui said Tuesday that the central bank will raise interest rates only gradually to avoid snuffing out the hard-won economic recovery.
"As I have stated repeatedly, the adjustment process will proceed gradually. This will avoid impeding the expansion of Japan's economy and will instead facilitate the realisation of sustainable economic expansion," he said.
"The specific timing of the move will be decided based on careful assessment of developments in economic activity and prices and thorough discussion of the issue among members at each monetary policy meeting," he said, according to a transcript of a speech to business leaders in the central city of Nagoya.
Fukui later suggested it was unavoidable that the central bank would raise interest rates again at some point but declined to predict when. The Bank of Japan's Policy Board voted unanimously to keep interest rates at 0.25 percent on November 16.
The market is braced for a rate hike next month or in early 2007 although some analysts see no reason for the central bank to tighten policy again while consumer price inflation remains weak.
The Bank of Japan kept interest rates at virtually zero for over five years until raising them to 0.25 percent in July as the world's second largest economy finally snapped out of the deflation doldrums.
Many government officials believe the Bank of Japan should be cautious on raising interest rates further given the risk that tightening monetary policy too fast could dent a still fragile economic recovery.
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