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 In a sign of reluctance to ease policy further, Koji Ishida said the
Bank of Japan (BOJ) should be careful in its economic assessment
because data in the first half of fiscal 2014 will be more volatile
due to the tax hike itself, suggesting the central bank will not be
easily swayed by a temporary slowdown.
Ishida's comments, which are in line with the BOJ's standard
assessment, may weaken speculation that the central bank will offer
additional stimulus this year due to doubts about the economy after
the sales tax increase.
"We cannot avoid the negative impact that the tax increase will have
on real household incomes," Ishida said in a speech to business
leaders in Saitama, north of Tokyo.
"However, government stimulus is a supporting factor and I expect
exports and capital expenditure to expand."
The BOJ last week maintained its pledge of increasing base money,
its key monetary policy gauge, at an annual pace of 60-70 trillion
yen ($589-$687 billion).
The BOJ has stood pat on policy since launching an intense burst of
stimulus last April, when it pledged to accelerate inflation to 2
percent in roughly two years via aggressive asset purchases in a
country mired in deflation for 15 years.
The government will increase the sales tax in April to 8 percent
from 5 percent, and consumers have been buying cars, homes and
durable goods before the increase, with growth in other consumer
spending also driving industrial production.
The debate about the economic outlook after the sales tax hike comes
at an awkward time for Prime Minister Shinzo Abe as investors start
to worry that his reform agenda will not be ambitious enough to
increase growth over the long term.
If consumer spending were to rise more than expected before the tax
increase, it could magnify the contraction in growth immediately
afterwards, Ishida said on Wednesday.
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Still, Ishida was confident that growth would continue as a positive
economic cycle where gains in output fuel higher wages and spending
remains intact.
Exports will become a driver of economic growth as renewed strength
in advanced economies supports some emerging markets, Ishida said.
However, emerging markets still pose some risks to the global
economy and the BOJ needs to monitor whether Japan's exports do
indeed gain more momentum, he said.
Ishida's views on exports may seem optimistic after Japan suffered a
record trade deficit in January as a weak yen pushed up the cost of
imports and failed to substantially raise exports.
Exports are likely to increase this year, but some economists worry
that a shift of production overseas means Japanese exports are not
the engine of growth that they once were.
Ishida also said that he saw a strong chance that Japan's consumer
prices will increase enough to reach the BOJ's 2 percent inflation
target from the second half of fiscal 2014 to fiscal 2015.
BOJ Governor Haruhiko Kuroda, who appeared in parliament on
Wednesday, also expressed confidence that prices are heading for the
central bank's inflation target.
(Editing by Eric Meijer)
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