Tue, Jul 30, 2013 - Page 15 News List

Economy can stand sales tax hike: Kuroda

Bloomberg

Bank of Japan Governor Haruhiko Kuroda gestures yesterday as he delivers a speech in Tokyo, Japan.

Photo: AFP

Bank of Japan (BOJ) Governor Haruhiko Kuroda yesterday gave little credence to concerns that a planned sales tax hike would derail Japan’s economic rebound as Japanese Prime Minister Shinzo Abe considers whether to proceed with the move.

“A two-step sales tax increase won’t give major damage to growth in Japan’s economy,” Kuroda said in a speech in Tokyo, referring to the central bank’s growth forecasts. “We consider a downturn in overseas economies to be the largest risk factor to the outlook for economic activity and prices.”

The comments are Kuroda’s most direct yet on the potential impact of the boost in the levy, weeks before Abe’s administration decides whether to go ahead with the first step, which would raise the tax to 8 percent in April next year from the current 5 percent.

While Japanese Minister Finance Taro Aso has said the government needs to proceed with an increase, other Abe advisers have expressed caution.

“The BOJ wants sales tax increases as it views them as a stabilizer for long-term yields,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co in Tokyo. “Kuroda is mindful that his massive easing will be meaningless if the market loses faith in Japanese government bonds.”

Any jump in concern about the sustainability of Japan’s public debt burden — the world’s largest — would add to pressure on a government debt market already facing the prospect of the end of 15 years of sustained consumer price declines.

Kuroda in April unleashed unprecedented monetary stimulus to rekindle inflation, which undermines the value of bonds’ fixed payments.

Kuroda was previously a senior bureaucrat in the Japanese Ministry of Finance, which has pushed for the sales tax to be raised to help the government rein in its debt.

Abe has instructed his government to study the impact to the economy of various options for the sales tax, the Nikkei Shimbun reported last week.

The four options include raising it as planned and freezing the tax for the time being, the newspaper said. The government currently plans to increase the tax to 8 percent in April and to 10 percent in October 2015.

Chief Secretary of the Japanese Cabinet Yoshihide Suga yesterday said the decision will come before the start of the autumn session of parliament, which has yet to be announced.

Even with a tax rise, the central bank expects real GDP to expand 1.3 percent in the fiscal year starting in April, according to the median estimate of the nine policy board members released earlier this month.

Cushioning the economy from the blow to personal consumption from the tax hike could cost ¥5 trillion (US$51 billion) in additional stimulus, according to the median forecast of 23 economists in a Bloomberg News survey last week.

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