"Many members said it was important to maintain credibility of fiscal management to keep interest rates stable. They expressed hope that the government steadily promotes steps to achieve fiscal consolidation."
-BoJ minutes
The Bank of Japan expressed its view that market trust in their structural reforms is vital in order to maintain the effects of central bank's monetary policy measures. The comments came after August's meeting, where Japanese authorities assessed various economic data to decide whether the world's third largest economy is ready to withstand an increase in consumption tax. While the majority of the BoJ's members claimed they expect the government to push forward their current policies, one member warned that any backpedalling of fiscal reforms would lead to a loss of market trust, pushing interest rates for long-term funding higher. He also stressed out market reaction could possibly offset the effect of BoJ's ultra-lose money policy.
Last week BoJ's Governor Haruhiko Kuroda told reporters he supports the government's plan to raise the sales tax to 8% from current 5% as planned. In case the hike is postponed, it would be difficult form the policymakers to deal with the possible drop in value of government securities. In early October Prime Minister Shinzo Abe is expected to decide whether to proceed with a two-stage hike, seen as a key first step to rein in country's ballooning public debt.
© Dukascopy Bank SA