Tokyo - North Korea's missile tests would not hurt Japan's economy or influence the central bank's decision on interest rates, Shinzo Abe, Japan's chief cabinet secretary, said yesterday. But anxious investors still sent Japanese stocks lower.
"There is no impact on the economy from North Korea's missile launches," a top government spokesperson said. "When the Bank of Japan makes a policy decision, we think there is no need to take this problem into consideration. We have no intent to ask the Bank of Japan to consider it."
With Japan's economy recovering, many investors and analysts expect the central bank to raise interest rates at its July 13 and 14 policy meeting, or at its meeting in August. The bank has not raised interest rates in nearly six years and has kept them at zero since March 2001.
Still, jitters over North Korea's missile launches on Wednesday set off declines on Japan's stock market, with the benchmark index falling 1.3 percent yesterday after dropping 0.7 percent on Wednesday.
North Korea confirmed it had fired seven missiles and threatened to launch more.
Worries about regional stability initially sent the yen lower against the dollar, although the dollar finished lower on profit taking at ¥115.48 in the middle of the afternoon in Tokyo yesterday from ¥115.71 late on Wednesday in New York.
Further bolstering speculation for a rate hike soon, Bank of Japan governor Toshihiko Fukui said yesterday that the Japanese economy was recovering steadily.
The central bank would continue to manage monetary policy by watching developments in the economy and prices.
"The economy will likely expand based on a favourable economic recovery cycle led by production, income and expenditure," he said.
The Bank of Japan has said it would not raise interest rates until consumer prices were steadily rising. Recent data showed that nationwide core consumer prices rose 0.6 percent in May, the seventh consecutive monthly increase.
Japan has been plagued by deflation, or a continuous decline in prices, which slashes corporate profits and wages. Signs have emerged of a revival, and the economy has marked five consecutive quarters of growth.
Meanwhile, Chinese shares rose to a two-year high yesterday. In Hong Kong, worries about the missile tests proved short-lived as shares rose on broad-based gains led by China Mobile, which is relatively insulated from current high interest rates and geopolitical risk.
The blue chip Hang Seng index rose 173.81 points, or 1.1 percent, to 16 440.99. Of the 33 benchmark index constituents, 28 rose, four settled unchanged and just one closed lower. - Sapa-AP