Ja­pan PM ad­viser sees no need for BoJ eas­ing, looks to­ward ta­per­ing

The Pak Banker - - COMPANIES/BOSS -

An eco­nomic ad­viser to Ja­pan's prime min­is­ter said on Tues­day that he saw no need for the Bank of Ja­pan to de­ploy ad­di­tional stim­u­lus to meet its 2 per­cent in­fla­tion goal next year, warn­ing that it could cause the yen to weaken and prices to over­shoot.

Et­suro Honda, spe­cial ad­viser to the Cab­i­net and a lead­ing ar­chi­tect of Prime Min­is­ter Shinzo Abe's re­fla­tion­ary eco­nomic pol­icy, told Reuters in an in­ter­view that the next step for the cen­tral bank could be to ta­per its mas­sive as­set pur­chases.

For that to hap­pen, Honda said, the BoJ would need to as­sess the im­pact of a planned sales tax hike to 10 per­cent in April 2017.

Honda's view stood in con­trast with his com­ments ear­lier this year when he said the BOJ could need to think about tak­ing ac­tion if in­fla­tion rose too slowly.

The world's third largest econ­omy and its price trend are on track for steady re­cov­ery, Honda said.

"I can­not fore­see any fac­tors that war­rant ad­di­tional eas­ing, bar­ring the un­ex­pected such as China shocks," he said, adding that there's no need to change the BoJ's time­frame to hit the 2 per­cent tar­get.

"In­fla­tion will reach around 2 per­cent next sum­mer. Af­ter mak­ing sure it is an­chored, ta­per­ing would be­gin." It would be safer to wait to see the im­pact of the sales tax in­crease be­fore ta­per­ing, as im­ple­ment­ing both mea­sures at the same time would deal a dou­ble blow to the econ­omy, Honda added.

An in­crease in the sales tax in April last year un­ex­pect­edly tipped Ja­pan into a re­ces­sion, prompt­ing Abe to de­lay the next in­crease by 18 months. Rather than mon­e­tary stim­u­lus, Honda said fresh fis­cal stim­u­lus of around 3 tril­lion yen ($24.20 bil­lion) would be needed later this year if pri­vate con­sump­tion re­mains weak. Another 3 tril­lion yen of fis­cal stim­u­lus would be needed for the fol­low­ing fis­cal year to pave the way for the sales tax hike in 2017, he added. "With­out eco­nomic growth we can­not achieve fis­cal con­sol­i­da­tion," Honda said. "Given the need of fis­cal dis­ci­pline, we can­not splurge (on bud­gets) though."

Slump­ing ex­ports and tepid pri­vate con­sump­tion have raised the prospect that the econ­omy may have con­tracted in the April-June quar­ter, cast­ing doubt on the BOJ's op­ti­mism over the trends in growth and prices. The BOJ, which holds a rate re­view later this week, is in no mood to ex­pand its al­ready mas­sive mon­e­tary stim­u­lus, but some an­a­lysts say it may be forced to act later this year.

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