Some of the Bank of Japan’s policymakers were worried in December that the first stage of the consumption tax hike in April will hurt business and consumer sentiment, although the Policy Board as a whole agreed the economy will probably continue to recover, minutes of the monthly meeting revealed Monday.
“A few members said that the effects of the consumption tax hike — including those on business and consumer sentiment — should be examined without making any prejudgment, considering that the economy had experienced a prolonged period of deflation,” the minutes of the Dec. 19 to 20 meeting said.
Policymakers shared the view that an increase in demand before the 3-point tax hike had been observed in the consumption of durable goods such as vehicles, while agreeing that private consumption was likely to remain resilient, supported by apparent improvements in employment and income.
A few members, meanwhile, pointed out that consumer confidence remained relatively weak, adding that this “might be attributable to consumers’ awareness of the consumption tax hike” and that future developments need attention.
One member said the rate of inflation, including the effects of the tax hike, was likely to outpace any wage increases.
Some members said it was necessary for the central bank to provide “a more thorough explanation to the public” regarding the path to achieving the BOJ’s 2 percent inflation target, given all the skepticism, particularly in the markets, the minutes said.
Some urged the BOJ to provide a clear explanation that the impact of the first sales tax hike had already been factored into its scenario for the economy.
On overseas economies, some members said the market’s response to the U.S. Federal Reserve’s decision to begin tapering its bond purchases was “generally positive,” but added that “attention should continue to be paid to the effects of this decision on emerging economies facing structural problems, such as current account deficits.”
In December, the Fed’s policy-setting panel said the U.S. central bank will start tapering its massive quantitative easing program in January amid signs of strength in the U.S. economy.