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BOJ Kuroda expects stimulus package to cushion tax hike impact

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(Globalpost/GlobalPost)

Bank of Japan Governor Haruhiko Kuroda on Friday praised the government's decision to raise the nation's sales tax as planned next April, and voiced a view that a stimulus package to moderate the negative impact of the tax hike is expected to sustain economic growth.

But the central bank chief also flagged caution over adverse effects from the ongoing U.S. budget impasse which has led to the partial shutdown of the U.S. federal government. It "could have a grave impact on the U.S. and global economy if the situation is prolonged," he said.

"I would like (the United States) to resolve the situation as soon as possible and eliminate the uncertainties regarding the fiscal issues," Kuroda said after the BOJ policy board, after a two-day meeting, decided to maintain its ultraeasy monetary policy and left unchanged its assessment of the domestic economy.

Last April, the Policy Board decided unanimously that the central bank will conduct market operations to increase the monetary base at an annual pace of about 60 trillion to 70 trillion yen.

Kuroda said central banks, including the BOJ, have the "capability to respond" to emergencies including a potential technical default by the world's largest economy if the U.S. Congress fails to raise the federal government's debt ceiling by the Oct. 17 deadline.

On Japan's planned consumption tax hike, Kuroda said the government's planned stimulus package to alleviate its adverse impact is likely to work to sustain economic growth. It "will be a considerable positive factor for the growth rate," he said.

"What is most important is to secure the credibility of the country's overall fiscal management," Kuroda said. "In that sense, it was a very significant decision," the central bank chief added, in speaking of Prime Minister Shinzo Abe's decision to raise the tax rate to 8 percent from the current 5 percent.

Earlier Friday, the nine-member Policy Board unanimously decided to keep intact the central bank's large-scale monetary easing policy introduced in April, centering on doubling the monetary base and boosting purchases of government bonds to achieve a 2 percent inflation target by around April 2015.

It also left unchanged its assessment of the domestic economy, stating it is "recovering moderately" amid continuing improvement in business sentiment and solid consumer spending.

"We are steadily advancing on the path to achieve a 2 percent price stability target," Kuroda said, showing confidence that the BOJ's monetary easing steps have stimulated demand among both Japanese companies and households.

The bank said business sentiment continued to improve, after its quarterly Tankan survey showed earlier this week that the business confidence index among large Japanese manufacturers rose in September from three months earlier for the third straight quarter -- and to its highest level since December 2007.

In its statement, the BOJ raised views on corporate and housing investment, saying capital spending "has been picking up" due to improvement in profits, while housing investment has "increased."

On overseas economies, the BOJ kept its view that they are "gradually heading toward a pickup" as a whole, though growth is slowing in some emerging economies.

On the outlook on the Japanese economy, the BOJ maintained the view that it is "expected to continue a moderate recovery," while the year-on-year rate of increase in consumer prices is "likely to rise gradually."

Japan's consumer price index excluding fresh foods rose 0.8 percent in August from a year earlier for the third straight monthly increase on higher gasoline and other energy prices, the highest margin of increase since November 2008.

==Kyodo

http://www.globalpost.com/dispatch/news/kyodo-news-international/131004/boj-kuroda-expects-stimulus-package-cushion-tax-hike-i