NEW YORK – With the economy softening, the Bank of Japan needs to at least consider further steps to support growth. There’s one major hurdle, however, and only Prime Minister Shinzo Abe can remove it.
The 2 percent hike in the consumption tax scheduled for October would shore up Japan’s fiscal position and thus its ability to pay for an aging population. Yet this plan hampers the central bank’s ability to weigh additional stimulus. Any admission by the BOJ that things are looking bleak would undercut the case for going forward with the tax rise and put the bank squarely in the middle of a domestic political squabble. Central banks the world over are wary of that gray zone.