Japanese economic growth in the fourth quarter of 2005 was slower than initial estimates, but expectations of a sustained recovery fuelled talk of an early interest rate rise.
Revised gross domestic product data today underscored an upbeat outlook for growth and prices that had prompted the BOJ to end its five-year-old ultra-easy monetary policy last Thursday.
With economic data generally robust, financial markets are now focused on when the central bank might start raising interest rates from current levels near zero.
BOJ Policy Board member Atsushi Mizuno said today monetary policy would be forward-looking from now and should take trends in asset prices into account.
"Personally, I think that the risk of returning to deflation and the risk of economic expectations turning excessive and asset prices overheating are equal. We should monitor the risk of excessive economic expectations and overheating in asset prices," he told business leaders in Otsu, western Japan.
Mizuno later said "neutral" rates should be higher than zero per cent considering Japan's potential growth rate, which he estimated to be around 1.5 to 2.0 per cent. That is higher than the central bank's estimate of around 1 per cent released in a report last October.
Revised gross domestic product data today showed the world's second-largest economy in the final three months of last year grew 1.3 per cent from the previous quarter in real, price-adjusted terms, compared with an initial reading of 1.4 per cent and a consensus forecast of 1.2 per cent.
On an annualised basis, October-December GDP grew 5.4 per cent, compared with a preliminary 5.5 per cent - far outpacing a revised 1.6 per cent annualised growth rate in the US in the same period.
It was also the fourth straight quarter of growth in Japan.
Economists had downgraded their forecasts for fourth-quarter growth after a quarterly survey by the Ministry of Finance showed that capital spending was not as strong as previously estimated.
The GDP report showed capital expenditures rising 0.4 per cent in the quarter, down from an initial estimate of 1.7 per cent.
Companies increased inventories for materials for televisions and semiconductor parts, and a government official said the move was positive as it was based on growing demand.
For calendar 2005, Japan's economy grew 2.7 per cent, the highest rate of expansion since 2.9 pe rcent growth in 2000.
Consumer confidence among households improved slightly in February from the previous month, rising to 49.8 from 49.5. The survey also showed more than half of the respondents said they expected prices to rise over the next year.
Separate data showed Japan's current account surplus shrank 7.6 per cent in January from the same month a year earlier to 719.1 billion yen ($6.05 billion).
Economists had forecast a bigger 13.9 per cent decline to 670 billion yen, but bulging returns on past overseas investments buoyed the income account surplus and underpinned the current account surplus despite a trade deficit.