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

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.