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Failure to raise sales tax ‘could hurt bond prices’

Kyodo

Bank of Japan Gov. Haruhiko Kuroda has urged the government to stick to its plan to raise the sales tax in April, saying Japanese government bond prices could collapse if it fails to do so, official sources said Wednesday.

“I do not intend to intimidate as the central bank (chief) but, personally speaking, I’m not in favor of taking a major risk,” Kuroda was quoted as saying at Friday’s government hearing with experts regarding the planned tax hike.

It is rare for a central bank governor to directly comment on government policy.

The government is expected to release the minutes of the weeklong hearings on Friday.

At the hearing, Kuroda said the government could increase spending on pump-priming measures and the BOJ could utilize monetary policies if the economy falters as a result of the tax hike, the sources said.

However, “the government and the BOJ cannot respond” if bond prices plunge should the government opt to put off the tax hike, Kuroda said.

If that happens, Kuroda added, the government would have no choice but to curb fiscal spending and the BOJ would face difficulty in calming the market, the sources said.

Kuroda said the government should make a decision on the proposed sales tax hike after examining all the necessary risks, the sources said.

Prime Minister Shinzo Abe has said he will make a decision on whether to raise the sales tax after examining the most recent economic data, including the results of the BOJ’s “tankan” business sentiment survey due out Oct. 1.

At the hearing, Kuroda was urged to keep his remarks “within the four walls,” considering the impact they could have on financial markets, the sources said.