Governor Kuroda today underlined the Bank of Japan’s view – already reflected in its economic forecasts – that the planned consumption tax hikes will neither derail the recovery nor prevent inflation from rising to 2% on a sustainable basis. But he also stressed the scope for additional monetary stimulus if needed to support growth, as well as the risks to credibility if fiscal consolidation is delayed. What’s more, the statement accompanying the decision to leave policy unchanged today was not quite as upbeat as some of the headlines suggest. All this is consistent with our view that the Bank will announce further monetary stimulus no later than the first quarter of next year.
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