MORIOKA, IWATE PREF. – A Bank of Japan Policy Board member Thursday called for the need to secure market trust in Japan’s fiscal health to fully exert the effects of monetary easing, apparently urging the government to proceed with its planned sales tax hike next year.
“As our country’s fiscal situation is severe, there is a possibility of long-term interest rates rising inconsistently with the economy and prices if credibility over finance is decreased,” Policy Board member Yoshihisa Morimoto said in a speech in Morioka.
Touching on the government’s goal of halving the ratio of the primary balance deficit to the nation’s gross domestic product by fiscal 2015 from the fiscal 2010 level, Morimoto urged the government to continue its efforts to promote the establishment of a sustainable fiscal structure.
“I am aware that efforts to secure fiscal health would be continued,” he said.
He presented the view that the country’s economy is likely to continue growing steadily even if the consumption tax is raised in two steps — from the current 5 percent to 8 percent next April, and to 10 percent in October 2015.
Morimoto said that though the economy would be affected by last-minute demand before the tax increase and a drop in demand after the hike, “a virtuous cycle of production, income and spending would be maintained” and actual growth will basically keep surpassing potential growth levels.
Regarding overseas economies, Morimoto said their resilience is “still fragile,” pointing to a risk of market participants withdrawing funds from emerging markets due to prospects of a tapering of the U.S. Federal Reserve’s quantitative easing.
Morimoto also touched on the need for monitoring the Chinese economy and developments in Europe, such as a general election next month in Germany. Geopolitical risks in the Middle East also require attention, he added.
Evidence by year’s end
One of the Bank of Japan’s highest-ranking officials said clear improvements in economic activity brought on by the BOJ’s radical monetary easing may be evident by the end of the year.
Significantly increasing consumer and capital investment spending “will come at year’s end at the earliest, and (more) noticeable (changes) will take place in the next fiscal year or later,” BOJ Deputy Gov. Kikuo Iwata said in a speech Wednesday in Kyoto.
It will take some time before persistent and steady pickups in prices and wages become evident as a result of an increase in demand for goods and services and of a rise in employment, he said.
Iwata, known as a strong proponent of aggressive monetary easing, said the most important point of the BOJ’s current policy is to dispel the deflationary expectations that have become firmly embedded and to generate mild and stable inflationary expectations.
He cited some positive developments already apparent, such as expanding exports in the wake of the BOJ’s effort to weaken the yen against other currencies, and rising domestic consumption.
Pointing to recent indicators such as a lowering in the unemployment rate, Iwata said he sees a clear sign of improvement in the labor market.