The Abe administration should proceed with the next consumption tax hike as planned to signal it is serious about reining in the world’s biggest debt burden, an adviser to Bank of Japan Gov. Haruhiko Kuroda said.
Annualized growth of 2.5 percent or more this quarter would be a green light for Prime Minister Shinzo Abe to go ahead with the increase, supporting the economy with additional stimulus as needed, Masahiro Kawai, a professor at the University of Tokyo, said in an interview Wednesday.
Abe is to decide by the end of the year whether to raise the levy by another 2 points to 10 percent after the rise to 8 percent in April caused the worst contraction in more than five years.
“A delay would send a message to the market and the world that Japan is quitting fiscal consolidation,” said Kawai, 66, who was Kuroda’s deputy from 2001 to 2003 when he was currency chief at the Finance Ministry. “What Japan really wants to avoid is a surge in long-term bond yields. That would be bad for Japan’s market and economy.”
Kawai, who co-wrote a 2002 opinion piece with Kuroda urging the BOJ to adopt a 3 percent inflation goal and boost the monetary base through asset purchases, said it’s too early for the bank to judge whether additional stimulus is needed.
Kuroda has said the BOJ would adjust monetary policy should prospects for achieving its inflation target be at risk.
“Kuroda really means what he says,” said Kawai. “He won’t hesitate at all. It’s just that there isn’t data demonstrating the necessity.”
The economy will expand an annualized 2.7 percent this quarter according to the median estimate in a survey by Bloomberg News.
Kawai was named one of 10 advisers to the BOJ on Sept. 4. The other nine are mostly business executives, including Sadayuki Sakakibara, Toray Industries Inc. chairman and head of the Keidanren business lobby. The advisers are appointed by the Finance Minister based on recommendations from the BOJ Policy Board, as stipulated by the BOJ law.
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