TOKYO, Oct 4 – The Bank of Japan on Friday held off fresh monetary easing measures despite fears about the impact of a sales tax hike on the country’s economic recovery and a Washington budget crisis that could see a US default.
After a two day policy meeting, BoJ officials issued an upbeat statement that said the economy was still “recovering moderately” while overseas economies were “heading toward a pick up”.
But policymakers also warned of risks on the horizon.
The bank had been widely expected to hold fire on as it studies how its unprecedented monetary easing plan, which pumps huge amounts of money into the financial system, was rippling through the world’s number three economy.
The meeting came just days after the BoJ published its Tankan survey, which showed business confidence in Japan had soared to a more than five year high in the past three months good news for Prime Shinzo Abe’s bid to revitalise the economy.
The closely watched indicator was seen as key to Abe’s decision this week to press on with a plan to hike sales taxes to 8.0 percent, from 5.0 percent, in April.
The rise is viewed as crucial for Japan to shrink what is the rich world’s heaviest public debt burden.
But some fear it will derail the premier’s economic policy blitz, dubbed Abenomics, which has sharply weakened the yen and boosted profits at major exporters such as Toyota and Sony.
Japan’s long suffering economy is growing at a 3.8 percent annualised rate outpacing other G7 nations thanks to government stimulus spending and central bank monetary easing of up to 70 trillion yen ($720 billion) a year.
But there are growing concerns about a budgetary stand off in Washington that economists fear could extend into the middle of the month, when the US runs out of cash to service its debts.
If the country’s borrowing limit is not raised before an October 17 deadline the country will default, sending shockwaves through the global economy.
BoJ Governor Haruhiko Kuroda will hold a news briefing at 3:30 pm (0630 GMT), where analysts will be looking for hints about future stimulus measures and its possible measures to deal with the US crisis.