The Bank of Japan’s increased purchases of government debt have eroded political incentives to raise the nation’s sales tax, according to an academic who has written books on the economy and fiscal policy.
“No one knows how much debt the BOJ will buy, but everyone can see they will keep bolstering purchases should pressure increase,” Yukio Noguchi, 71, professor emeritus at Hitotsubashi University in Tokyo, said in an interview last week. “From a political standpoint, the BOJ is providing a sense of security that they’ll take care of everything and that the sales tax doesn’t need to be raised.”
Prime Minister Yoshihiko Noda is trying to win parliamentary backing this month to double the nation’s 5 percent sales tax by 2015. The BOJ, which has been buying government debt as part of its asset-purchase program, would be committing a “huge crime” by failing to stand up to political calls for it to add policy stimulus, Noguchi said.
The BOJ has said its bond purchases aren’t intended to finance the nation’s debt burden, currently the largest in the industrialized world. It has increased the size of pledged bond purchases twice this year and in February unveiled a 1 percent inflation target to overcome deflation.
“They won’t be able to achieve the 1 percent consumer- price target for a while with monetary policy, so it’s a meaningless goal,” said Noguchi, who is also a former Finance Ministry official. His published works include “The Structure of Fiscal Crises.”
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