MATSUE, SHIMANE PREF. – A Bank of Japan deputy governor expressed concern Wednesday about the prospect of the United States defaulting on its national debt, and optimism about attaining the central bank’s 2 percent inflation target.
On consumer prices, the BOJ is likely to achieve its inflation goal “from the latter half of fiscal 2014 through fiscal 2015,” Deputy Gov. Hiroshi Nakaso said in a speech in Matsue, Shimane Prefecture.
The central bank introduced large-scale monetary easing in April to achieve the target in about two years, aiming to beat long-standing deflation.
Noting the consumer price index, excluding fresh food, rose 0.8 percent in August from a year earlier, Nakaso said the supply and demand balance in the economy is expected to improve and inflation expectations to rise further.
On the U.S. economy, he said a failure to reach agreement on a preliminary budget “might have adverse effects on the global economy through a downgrading of U.S. government bonds,” leading to higher long-term interest rates, plunging stocks and fluctuations in foreign exchange rates.
As the U.S. debt ceiling will be reached Oct. 17, redemption and interest payments on U.S. government securities will be stopped if a resolution is not speedily agreed upon by bickering legislators, Nakaso warned.
Solving this problem would remove the uncertainty regarding the world’s largest economy and could “provide a boost toward economic recovery,” he added.
“At any rate, a prompt resolution” of the issue is “critical for the global economy, including Japan,” he said.