Japan shouldn't exaggerate pain from tax hike: BOJ policymaker

Wed Sep 11, 2013 4:16am EDT
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By Leika Kihara

AOMORI, Japan (Reuters) - Policymakers should not overreact to any blip in the economy from an expected sales tax hike next year, a Bank of Japan board member said, suggesting that no additional monetary stimulus is required as long as the downturn is short-lived.

Prime Minister Shinzo Abe on Tuesday ordered his government to craft measures to bolster the economy to cushion the impact of an increase in the sales tax. He is likely to formally decide early next month on implementing the tax.

A recent slew of positive economic data has heightened views the economy can weather the pain from the tax hike, although some market players say the central bank may come under pressure to loosen monetary policy further to soften the blow.

If the sales tax is increased in April, there will be a rush in consumer spending prior to then, followed by a slump which, taken together, will be neutral for the economy, BOJ board member Koji Ishida said on Wednesday.

"If we exaggerate the reactionary economic slump, it may affect public expectations and hurt sentiment. We should react calmly (to any such blip)," Ishida told a news conference after meeting business leaders in Aomori, northern Japan.

"We'll of course take preventative steps if the damage from the slump broadens ... Otherwise, we should respond calmly," he said, suggesting that further monetary easing would be required only if the shock from the tax hike is big and lasting enough to threaten efforts to end deflation.

The BOJ launched an intense burst of monetary stimulus in April, pledging to double the base money via asset purchases to achieve its 2 percent inflation target in roughly two years. It has stood pat on policy since then.


A pedestrian holding an umbrella walks past the Bank of Japan headquarters in Tokyo August 8, 2013. REUTERS/Yuya Shino