KANAZAWA: Bank of Japan Deputy Governor Kikuo Iwata on Wednesday reiterated policymakers' conviction that the economy can recover from a deep slump, saying that households and companies will boost spending as the pain from an April sales tax hike eases.
Iwata acknowledged that weak exports and the rising burden on households from the tax hike were among risks to the outlook, but said a pick-up in global demand and wages will keep the world's third-largest economy on track for a moderate recovery.
"Our quantitative and qualitative easing (QQE) has been exerting the intended effects on the economy.
As the positive cycle of output, income and expenditure is sustained, the effect of our monetary easing will strengthen," he said in a speech to business leaders in Kanazawa, a city in Ishikawa prefecture in central Japan.
Japan's economy shrank an annualised 7.1 percent in April-June from the previous quarter, the biggest contraction since the global financial crisis in 2009, due to the hit from the sales tax hike in April. That has heightened doubts in markets that the BOJ can accelerate consumer inflation, now around 1.3 percent, toward its 2 percent target next year.
However, Iwata countered the view that wage rises have been slow despite the BoJ's massive monetary stimulus, saying that it takes time for companies - long used to deflation and hesitant to increase wages - to consider raising base salary.
He also disagreed with many private-sector analysts that consumer inflation will slow as the boost from the weak yen begins to fade, saying that there was no strong historical co-relation between the yen and price moves.
"The biggest factor behind underlying price gains is an increase in demand in the economy due partly to the effect of our monetary policy," he said.
A former academic, Iwata has been a vocal advocate of using monetary policy to target base money.
The BoJ has stood pat since deploying an intense burst of monetary stimulus in April last year, when it pledged to double base money via aggressive asset purchases to achieve its 2 percent inflation target in roughly two years.
Private-sector analysts expect only a modest economic rebound in the current quarter as the tax-hike impact persists, and some of them see the economy barely growing in the current fiscal year ending in March 2015.
The BoJ is much more optimistic on the outlook, however, forecasting in July that the economy will expand 1.0 percent in the current fiscal year.
Still, given the soft GDP data, it is likely to cut its projections in late October, sources have told Reuters.
Comments
Comments are closed.