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TOKYO : Japan's central bank chief warned Friday to pay attention to the risks from soaring energy prices, saying that policymakers underestimated the impact of the oil shocks in the 1970s.
But Bank of Japan governor Masaaki Shirakawa stayed tight-lipped on the course for interest rates. He reiterated his view that the world's second biggest economy was slowing in the short term but would not face recession.
Central bankers in the United States and Europe have increasingly signalled that their chief concern was inflation -- which would incline them to raise interest rates -- rather than slowdown fears that have led to rate cuts.
"The Bank of Japan is no exception. We need to have an appropriate monetary policy amid the combined risks of recession and inflation," Shirakawa said in a speech.
But he cautioned to look at how Japan reacted in the 1970s, when oil prices soared on trouble in the Middle East.
"Looking back to what the monetary policy authorities had discussed in the 70s and 80s, I found that the dominant view at the beginning was that the country would not have to worry about inflation. But the result was that there was serious inflation," Shirakawa said.
"People tend to think that this time is different. We shouldn't think that way," he told a think tank affiliated with Jiji Press.
The Bank of Japan on Tuesday kept its benchmark borrowing rate at 0.50 percent, the lowest among major economies. Shirakawa said that the chances that Japan would hike or cut interest rates remained "50-50."
Crude oil prices have jumped five-fold since 2003, although they eased this week.
Shirakawa said central banks across the developed world were in agreement in principle not to raise interest rates simply due to the rising cost of importing oil.
But he said they believed it was appropriate to raise rates to respond to a so-called "second-round effect" -- rises in wages and prices caused by expectations of inflation.
Shirakawa said, however, that he does not think a second-round effect has happened so far.
- AFP/vm
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