The global economy could be hurt if the withdrawal of funds from emerging markets picks up ahead of an expected reduction in the U.S. Federal Reserve’s monetary stimulus, a Bank of Japan board member said on Thursday.
Yoshihisa Morimoto also signaled that Japan’s government needed to proceed with a planned two-stage hike in the sales tax as part of efforts to fix its tattered finances, or face a severe market backlash.
He shrugged off the need to loosen monetary policy again to ease the pain from the tax hikes.
The former utility executive stuck to the BOJ’s assessment that Japan’s economy was headed for a moderate recovery, but noted challenges such as geo-political risks in the Middle East and market volatility caused by expectations the Fed could start tapering its bond-buying program as soon as next month.
“Market participants are withdrawing funds from emerging and resource-rich nations on expectations (of Fed’s tapering) and may continue to do so,” Morimoto said in a speech to business leaders in Morioka, northeastern Japan.