Daily FNArena News - International

The OECD has suggested Japan should be conservative when considering future interest rate increases as deflation remains a threat and reducing government debt should be a higher prioroty.

Morgan Stanley economist Andy Xie remains bearish on Asia, suggesting ongoing strength in oil prices is likely to impact on growth unless Asian governments increase interest rates significantly.

China’s growth for the June quarter was higher than expected at 11.3%, leading to renewed speculation of further increases in interest rates. But most experts suggest this is not enough without further adjustments to the exchange rate.

China is expected to report quarterly GDP growth of more than 10% today, leading an increasing number of experts to argue higher interest rates will be needed to curb the growth rate.

Experts are divided as to how soon it will be before the Bank of Japan (BOJ) will be forced to lift interest rates again after last week’s 0.25% increase.

The Bank of Japan has lifted official interest rates by 0.25% in confirmation the economy’s health continues to improve, though analysts suggest no further increases are likely this year.

Traders sold the yen overnight as comments by the Japanese finance minister created fresh doubt as to the size of any move on interest rates following the Bank of Japan meeting today and tomorrow.

GaveKal Research suggests the market is factoring in a series of rate increases in Japan, but the BOJ is more likely to adopt a cautious approach.

Recent volatility and a history of poor performance near the top of the interest rate cycle in the US has brokers suggesting Asian emerging market performance may be subdued in the next few months.

The prospect in Indonesian interest rates falling to 10.75% this year is expected to bode well for the stock exchange, particularly banking and property stocks.