BOJ chief calls for fiscal discipline as tax hike debate heats up

Thu Aug 8, 2013 5:22am EDT
 
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By Leika Kihara and Stanley White

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda issued a strong warning on Thursday against easing up on fiscal discipline, stressing that the country can raise the sales tax and still keep the economy strong enough to put an end to grinding deflation.

His remarks came amid an intensifying political debate on whether Japan should proceed with a planned two-stage hike in the sales tax from next year, or opt for a more moderate rise to ease the pain on an economy just emerging from stagnation.

At a two-day rate review that ended earlier on Thursday, the BOJ kept monetary policy steady and held off on revising up its assessment of the economy, preferring to wait for more clues on whether increasingly positive data will encourage companies to ramp up spending.

While refraining to comment directly on whether Japan should go ahead with the tax hikes, Kuroda said that without efforts to rein in Japan's huge public debt, investors may sell government bonds en masse and push up yields to punishing levels.

"The BOJ is buying huge amounts of government bonds. This in itself is necessary to achieve our 2 percent inflation target," Kuroda told a news conference after the rate review.

"But if markets start to worry that Japan's fiscal discipline is loosening ... or that the BOJ is monetizing public debt, long-term interest rates may spike and reduce the effect of our quantitative easing," he said.

Prime Minister Shinzo Abe, who is wavering on whether to proceed with the scheduled tax hikes, has instructed the government to hold meetings with business leaders and academics later this month to assess the impact on the economy.

Economics Minister Akira Amari said a final decision would be made in late September through early October.   Continued...

 
Bank of Japan Governor Haruhiko Kuroda speaks during a news conference in Tokyo August 8, 2013. REUTERS/Yuya Shino