Wednesday, September 10, 2014

Japan PM, BOJ Chief to Meet as Tax Hike Pain Persists

Abe Shinzo(Reuters) - Japan's prime minister will meet the head of the central bank on Thursday to exchange views on the economy, sources with knowledge of the meeting said, amid lingering worries over a prolonged drop in consumption after an April sales tax hike. (Image added: Shinzo Abe)

The first such meeting since April comes ahead of Prime Minister Shinzo Abe's crucial decision on whether to proceed with a second sales tax hike planned for October next year, and as speculation mounts of whether the Bank of Japan will have to ramp up its stimulus program.

The focus will be on whether Abe will urge BOJ Governor Haruhiko Kuroda to ease monetary policy further if the economic rebound from a deep second-quarter contraction proves to be much weaker than expected, analysts say.  

The two, who meet one-on-one regularly about once every quarter, are likely to discuss a slew of recent soft economic data.

For now, many analysts do not expect Abe to apply explicit pressure on the BOJ for action.

"If the economic recovery falters, the government may consider compiling an extra budget to deploy fiscal stimulus and in doing so, it may call on the BOJ to act, too," said Junko Nishioka, chief Japan economist at RBS Securities.

"But the BOJ had made it clear that it won't yield to pressure after having deployed massive stimulus in a single blow last April. Unless economic or market conditions deteriorate sharply, I expect the BOJ to stand pat," she said.

Recent declines in the yen and their impact on Japan's economy may also feature in the meeting, with exports having failed to pick up despite the weak yen partly because many firms have shifted production overseas.

Kuroda usually speaks briefly to reporters after the meeting, which in the past had lasted for about an hour. It will begin at midday.

The BOJ last April pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 percent in roughly two years.

Analysts have said the weak performance following the sales tax hike in April will keep the BOJ and Abe's government under pressure to expand fiscal and monetary stimulus in order to reflate the long-moribund economy.

(Refiles to delete redundant word in first paragraph)

(Reporting by Yoshifumi Takemoto, Sumio Ito, Leika Kihara and Chris Gallagher; Editing by Michael Perry & Kim Coghill)

Reuters


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