Bloomberg News

Kuroda Warns Against Forgoing Japan’s Planned Sales-Tax Increase

August 08, 2013

Bank of Japan Refrains From Adding to Record Monetary Stimulus

The Bank of Japan raised its assessment of the economy in July for a record seventh straight month. Photographer: Tomohiro Ohsumi/Bloomberg

Bank of Japan Governor Haruhiko Kuroda warned against a delay in the nation’s planned sales-tax increase, while pledging that the central bank will take action should its two-year, 2 percent inflation target be endangered.

Budget consolidation is vital, and a loss of confidence in Japan’s fiscal sustainability could lead to higher government bond yields, undermining BOJ monetary stimulus, Kuroda told reporters today in Tokyo. He said he hopes that Prime Minister Shinzo Abe’s government will proceed with fiscal tightening.

Abe faces a decision on whether to proceed with a 3 percentage-point bump in the sales tax in April that analysts predict will cause at least one quarter of economic contraction. Kuroda today was named to serve on a panel of experts that will analyze the issue, stemming from legislation enacted before Abe took office that gives the government the power to hold off should the economy be judged not strong enough.

“Ending deflation and raising the sales tax are achievable at the same time,” Kuroda said today. “Restoring fiscal health is absolutely necessary and important by itself, but once fiscal discipline is loosened, it’s true that that will indirectly make a negative impact on monetary measures.”

A surge in bond yields could result from any perception that the BOJ’s “massive” purchases of debt are perceived as financing the government, Kuroda said. The BOJ, as other developed-nation central banks, buys the securities in the secondary market, rather than directly underwriting debt -- a step it took in the 1930s.

No Action

Kuroda spoke hours after the BOJ refrained from adding to unprecedented monetary stimulus after consumer prices rose in June and a recovery in the world’s third-biggest economy maintained momentum.

The board stuck with an April pledge to expand the monetary base by 60 trillion yen to 70 trillion yen ($727 billion) per year, the bank said in a statement released in Tokyo today showed. All 26 economists in a Bloomberg News survey predicted the decision.

Japan’s economy grew an annualized 3.6 percent in the second quarter, sustaining a recovery jump-started by fiscal and monetary stimulus and a slide in the yen, according to the median estimate in a Bloomberg survey ahead of data due Aug. 12. A planned sales-tax increase in April could add pressure for extra easing as advisers to Prime Minister Shinzo Abe express concern over the likely hit to growth.

Improving Economy

“The BOJ can sit and wait as the economy is improving and consumer prices are rising,” said Maiko Noguchi, senior economist at Daiwa Securities Co. and a former central bank official. The weak yen won’t provide a continuous boost to growth, while a proposed sales-tax increase would add to uncertainties, she said.

The central bank left its assessment of the economy unchanged after raising its view in July for a record seventh straight month. It pointed in today’s statement to the European debt crisis and the pace of the U.S. recovery as risks. The BOJ didn’t mention Japan’s consumption tax in the statement.

Koichi Hamada, a retired Yale University professor who advises Abe on monetary policy, said yesterday that Kuroda should be prepared to expand easing if the economy falters after the sales-tax increase. Another adviser, Etsuro Honda, said in an interview that lawmakers are reluctant to reopen legislation on the levy increase.

Most economists in a Bloomberg survey expect the bank to ease further by June as inflation remains distant from a 2 percent target. Prices in June rose 0.4 percent from a year earlier, the most since 2008 and the first positive number in more than a year. The central bank’s preferred measure of inflation excludes fresh-food costs, which are volatile.

To contact the reporters on this story: Toru Fujioka in 東京 at; Masahiro Hidaka in 東京 at

To contact the editor responsible for this story: Paul Panckhurst at

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