TOKYO: The Bank of Japan yesterday held off fresh monetary easing measures, but its chief said he was ready to act if the economy took a hit from a sales tax hike or US debt default.
After a two-day policy meeting, BoJ officials issued an upbeat statement which said the economy was still “recovering moderately” while overseas economies were “heading toward a pick-up”.
The bank had been widely expected to hold fire as it studies how its unprecedented monetary easing plan, which pumps huge amounts of money into the financial system, was rippling through the world’s number-three economy.
But bank Governor Haruhiko Kuroda said he was ready to pull the trigger on fresh policy moves if the economy heads south.
“We will review both upside and downside risks,” Kuroda told reporters in Tokyo.
“If something happens, naturally we will take whatever monetary policy actions are necessary.”
The meeting came just days after the BoJ published its Tankan survey, which showed business confidence in Japan had soared to a more than five-year high in the past three months —good news for Prime Shinzo Abe’s bid to revitalise the economy.
The closely watched indicator was seen as key to Abe’s decision this week to press on with a plan to hike sales taxes to 8.0 percent, from five percent, in April. The rise is viewed as crucial for Japan to shrink what is the rich world’s heaviest public debt burden.
But some fear it will derail the premier’s economic policy blitz, dubbed Abenomics, which has sharply weakened the yen and boosted profits at major exporters such as Toyota and Sony.
Japan’s long-suffering economy is growing at a 3.8 percent annualised rate — outpacing other G7 nations — thanks to government stimulus spending and central bank monetary easing of up to 70 trillion yen ($720bn) a year.
More BoJ easing measures are ‘inevitable’
Some analysts believe it is just a matter of time before the BoJ has to ramp up its pump priming as the effects of the initial injection wears off.
Abe’s promised economic reforms, which are seen as key to Japan’s recovery, have so far been more talk than action. “We continue to believe it is inevitable that the Bank of Japan will launch additional easing measures,” Credit Suisse economist Hiromichi Shirakawa said in a report.
“The scenario to achieve economic growth through structural reforms sounds nice. But it would take a significant amount of time and its effects remain uncertain.”
There are growing concerns about a budgetary stand-off in Washington that economists fear could extend into the middle of the month, when the US runs out of cash to service its debts.
If the country’s borrowing limit is not raised before an October 17 deadline the country will default, sending shockwaves through the global economy.
Kuroda warned that if the impasse dragged on too long “it might have a serious impact on the US economy and the world economy”.
AFP
