BOJ Deputy Governor Confident Companies Will Boost Spending

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.

“The recovery in consumption has been patchy … But taken together, it is gradually recovering. It’s not as if household spending is headed for a deep dive,” he told a news conference after meeting business leaders in Kanazawa, a city in Ishikawa prefecture in central Japan.

 
“We’re on track to meeting our price target,” he said, suggesting that he saw no need to expand monetary stimulus any time soon to ease the pain from the tax hike.

Japan’s economy shrank an annualized 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 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.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza