Bank of Japan Raises Discount Loan Rate to 6%

The Bank of Japan today raised its key discount lending rate to 6% in a bid to curb inflation resulting from rising oil prices during the Mideast crisis.

The discount rate announcement came one day after the central bank ruled out rumors in local media that a rate hike was imminent. The increase from 5.25% is the second this year and the fifth since May, 1989.

Bank of Japan Gov. Yasushi Mieno told a news conference that higher oil prices added to already worrisome domestic inflationary pressures, prompting the central bank to act to slow inflation and stabilize financial markets.

“Taking precautionary measures is very important for Japan, whose economic performance has such influence on the rest of the world,” Mieno said. “We have to prevent domestic inflationary pressures from growing further in order not to disturb the world economy.”

Higher rates are expected to slow business capital expenditures and cool economic growth, and also generally discourage stock investments.

But stock traders reacted positively to the central bank action anyway.

The Nikkei index rose 775.17 points, or 3.11%, today to close at 25,669.96.

In the foreign exchange market, the dollar closed at 144.10 yen, down 0.25 yen from 144.35 yen Wednesday. It opened at 143.60 yen and ranged between 143.60 yen and 144.40 yen.