Global woes sap BOJ confidence in economic outlook

Thu Oct 24, 2013 5:06pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Leika Kihara

TOKYO (Reuters) - A sluggish U.S. economy and tepid exports to emerging markets are sapping the Bank of Japan's confidence that a recovery in overseas markets will take up the economic slack in Japan when consumers are hit with a higher sales tax next year.

Only three months ago, the BOJ had expected global economic growth to pick up by early next year, in time to offset an expected downturn in household spending as the sales tax rises to 8 percent from 5 percent.

Now, many central bankers doubt the global economy will recover so soon, given a slowdown in emerging Asia and a lingering impact from the U.S. debt crisis, which could intensify once again early next year when Washington reaches its borrowing ceiling once again.

"Risks from overseas have heightened somewhat from three months ago, delaying a pick-up in the global economy," said a source familiar with the central bank's thinking.

That will temper the extent to which the BOJ might increase its long-term economic forecasts in a quarterly review at a policy meeting next week, said people familiar with the BOJ's thinking. The BOJ is widely expected to maintain its monetary policy stimulus at the review on October 31.

The central bank maintains that the Japanese economy can sustain a moderate recovery. At next week's meeting, the BOJ is expected to revise up economic growth for the fiscal year beginning in April 2014 to around 1.5 percent from the current 1.3 percent, said the sources, who declined to be identified.

The revision is based on a 5-trillion-yen ($51 billion) stimulus package planned by Prime Minister Shinzo Abe to offset the initial impact of the increase in the sales tax.

Analysts expect the stimulus package to add a maximum of 0.5 percentage point to growth.   Continued...

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