BOJ head: Up to government to tackle debt
BANK of Japan (BOJ) chief Haruhiko Kuroda emphasised that the onus is on the government to strengthen its finances after Prime Minister Shinzo Abe postponed a sales-tax hike and outlined plans to boost fiscal stimulus.
"It's the responsibility of Parliament and the government, not an issue for the central bank to be held responsible for," Mr Kuroda said when asked about risks to Japan's fiscal health. The BOJ's job is to achieve its inflation target, he said at a press conference in Tokyo.
Mr Abe's move to pursue growth before raising the sales levy puts the spotlight on Japan's ability to manage the world's heaviest debt burden. Mr Kuroda's repeated comments at a press conference yesterday on the importance of fiscal discipline indicate that the governor is unhappy and may signal a change in strategy, said Credit Suisse Group economist Hiromichi Shirakawa.
"Mr Kuroda is making it crystal clear that the government has to tackle the debt problem and if fiscal trust is lost, that's not going to be on the BOJ," said Mr Shirakawa, a former BOJ official.
"This is true, but he used to highlight that the BOJ and the government were working together. Mr Abe might have created an enemy by postponing the sales-tax hike."
Mr Abe on Tuesday called an early election in a bid to extend his term and salvage his Abenomics policies. He delayed for 18 months the increase in the tax to 10 per cent, after a bump to 8 per cent in April helped tip Japan into its fourth recession since 2008.
Delaying the increase risks Japan's fiscal-consolidation targets. The government aims to cut the primary balance deficit as a proportion of gross domestic product in the year starting next April to half the 2010 level and reach a surplus in 2020.
The Prime Minister on Tuesday indicated his intention to continue with efforts to restore the government's finances to health.
"There is no backing away from our commitment to fiscal consolidation," Mr Abe said. "We will keep our fiscal 2020 goal to achieve fiscal health. I am convinced that through that, there will be no loss of international trust."
The central bank and government issued a joint statement in January last year pledging the BOJ would work towards achieving 2 per cent inflation while the government was responsible for fiscal consolidation and a growth strategy.
"There will be yellow lights flashing on whether we can achieve our fiscal target next year" considering the need to compile an economic stimulus package, Economy Minister Akira Amari told reporters on Tuesday after Mr Abe's comments. "All I can say now is we will make our utmost efforts."
Yesterday, the BOJ also said it had an upbeat economic view despite data showing the country had slipped into recession.
"With regard to the outlook, Japan's economy is expected to continue its moderate recovery trend, and the effects - including those of the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike - are expected to dissipate gradually," the BOJ said in a statement.
Despite its bullish view on the overall economy, the bank was more cautious on inflation expectations, saying that they "appear to be rising on the whole from a somewhat longer-term perspective".