BoJ chief quashes additional stimulus hopes

BoJ chief quashes additional stimulus hopes

TOKYO - The head of the Bank of Japan on Tuesday quashed hopes of an imminent expansion to its massive stimulus scheme, and said the country's first sales tax hike in 17 years would not derail a budding recovery.

BoJ chief Haruhiko Kuroda - who also stuck to an ambitious inflation target despite growing doubts among analysts - made the comments came as the central bank held fire on expanding a multi-billion-dollar asset-purchase scheme introduced in April last year. The decision Tuesday followed a two-day policy meeting.

The stimulus is a cornerstone of Japanese Prime Minister Shinzo Abe's wider bid to drag the country out of years of deflation and slumbering growth.

Kuroda - the former head of the Asian Development Bank hand-picked by Abe to help steer his growth bid - said Tuesday that the economy was pushing ahead despite fears the tax rise will dampen consumer spending.

While it is seen as crucial to shrinking Japan's mountainous debt burden, the higher levy has increased speculation that the BoJ will have to add to its stimulus sooner rather than later.

The last time Japan introduced a higher sales levy, in 1997, it was followed by years of deflation and tepid economic growth that defined the country's protracted slump.

"The sales tax hike is expected to shake growth temporarily, but the bank believes the positive cycle in the Japanese economy will not be stopped and the economy will continue to recover moderately," Kuroda told reporters in Tokyo.

"I am not considering taking additional easing measures at this point, because the economy is steadfastly moving towards reaching the stable 2.0 per cent inflation goal and that I don't think there is a need for additional easing measures."

But Kuroda repeated his view that the BoJ would not hesitate to expand monetary easing to reach its 2.0 per cent inflation target by next year, a goal seen as key to reversing years of deflation.

More stimulus likely

Analysts have been increasingly sceptical about that timing, although recent inflation data have suggested efforts to reverse falling prices and lacklustre growth are taking hold.

"Nonetheless, we still think that inflation will continue to fall short of the BoJ's 2.0 per cent inflation target, which should eventually prompt the central bank to announce more stimulus," Capital Economics said.

"But this decision can wait until the second half of the year, perhaps until October."

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