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Japanese firms split on moving from 0%.


We all know about the eternal game of guessing what the Federal Reserve will do in its never-ending battle against inflation. Until the last couple of months, those betting on rate hikes have been winning, with a ladder-like series of increases taking the Fed funds fed funds

See federal funds.
 rate to 5.25 percent, from under 2 percent in 2004.

But imagine how those rates would play in deflation-challenged Japan, where rates had been pegged at zero for years until this past July, when the Bank of Japan lifted its zero-interest rate policy in line with price increases and signs of economic recovery.

Teikoku Databank, a research firm, polled Japanese firms about the move and found a lot of continuing angst angst 1
n.
A feeling of anxiety or apprehension often accompanied by depression.



angst 2
abbr.
angstrom
 over the notion of recovery. More than a third of the 9,852 responding companies said the lifting of the zero-rate floor was "too early," though about the same number deemed it "appropriate." Almost two-thirds of respondents said they still "do not feel the breakaway break·a·way  
adj.
1. Designed to break, bend, or fall apart easily upon impact, especially to create an illusion, as with a theater prop, or for safety, as with a highway sign or barrier.

2.
 from deflation deflation: see inflation.
deflation

Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation.
" in the Japanese economy.

Moreover, almost twice as many respondents expressed concerns that the burden of rising interest rates will adversely affect the upward trend of the economy than those that expressed no concerns.

When companies won't borrow even when interest rates are at zero, you wonder what it would take them to start borrowing (and growing) again. This bunker mentality bunker mentality
n.
An attitude of extreme defensiveness and self-justification based on an often exaggerated sense of being under persistent attack from others.

Noun 1.
 seems to be an abiding concern that years and years of deflation seemed to have planted in the Japanese business psyche Psyche (sī`kē), in Greek mythology, personification of the human soul. She was so lovely that Eros (Cupid), the god of love, fell in love with her. .
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Article Details
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Title Annotation:monetary policy
Author:Heffes, Ellen M.
Publication:Financial Executive
Date:Nov 1, 2006
Words:246
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