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Bank of Japan Holds Off Further Stimulus

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Bank of Japan Holds Off Further Stimulus

Bank of Japan Governor (BoJ), Haruhiko Kuroda, has just completed the main part of the Bank’s post interest rate decision press conference. The BoJ once again held back from introducing further monetary stimulus into the Japanese economy. The key central bank lending rate was held constant at 0.1%, a level it has been at since early 2010.

Kuroda was bullish on the growth prospects of the Japanese economy, which has been mired in deflation for an extended period. He acknowledged that although growth was on track there has been some ‘fluctuations’ recently due to the sharp increase in sales taxes within the economy.

Japan raised the sales tax rate from 5% to 8% at the beginning of this month in a much needed bid to bring in revenue in order to assist in the management of the country’s central debt problem.

The world’s third largest economy holds the record for having the world’s largest public debt burden. Debt/GDP in Japan is currently at 240% and is expected to reach 260% by the end of next year.

Despite this, the BoJ Governor added that the Bank is not currently prepared to expand the existing monetary base beyond the current pledge of an additional ¥60 – ¥70 trillion per annum. Commentators however disagree with this approach citing the dampening of domestic activity following the sales tax introduction as becoming a catalyst that will force the BoJ to further increase the pace of its monetary stimulus program in the coming months.

The effects of this recent sales tax hike will be very closely watched over the coming weeks as the Japanese Government is actively debating the addition of a further 2% to this levy. Finance Minister, Taro Aso, has been publicly encouraging the Bank of Japan to consider additional monetary easing in order to prepare the economy for the further rise in retail taxes.

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