Wednesday, October 9, 2013
DJ: BOJ Deputy Gov Sends Out Fresh Warnings Over U.S. Debt Stalemate
MATSUE, Japan--One of the Bank of Japan's deputy governors Wednesday issued a fresh warning over the potential repercussions of a U.S. debt impasse, as weeks of political brinkmanship in Washington casts a pall over Tokyo's efforts to defeat more than a decade of deflation.
If the U.S. government and Congress fail to resolve the debt stalemate, causing a default, "it might have significant adverse effects on the global economy through a downgrading of U.S. government bonds and an associated rise in premiums transmitting to markets in other countries," Hiroshi Nakaso said in a speech to business leaders in Matsue, southwestern Japan.
"At any rate, a prompt resolution of the fiscal consultation issue is critical for the global economy, including Japan."
Echoing similar warnings made last week by Gov. Haruhiko Kuroda, Mr. Nakaso's remarks suggest that Japanese officials are growing nervous as their U.S. counterparts continue to struggle to solve disagreements on federal spending and health-care policy. While Japanese officials see the chance of a U.S. default as a remote possibility, they've been asking the U.S. Treasury through backdoor channels to try to resolve that problem quickly, Japanese government officials have told The Wall Street Journal.
The U.S. debt woes comes at a delicate time for the BOJ, whose goal is to beat deflation and generate 2% inflation in two years. Japan's economy grew strongly in the first half of the year with prices gradually coming back up, but the recovery has so far relied heavily on the yen's weakness and a general sense of optimism that has sparked domestic spending. And both could reverse course should a U.S. default rock the global market--as indicated by the yen's recent rebound in response to worries over the U.S. policy deadlock.
Such a default could "induce" rises in global long-term interest rates, a "plunge" in stock markets, and volatility in exchange rates, Mr. Nakaso said.
While one of Japan's main growth engines over recent months has been consumer spending, the BOJ sees exports as a crucial source of growth needed to hit its price target in time. The debt problem is drawing its close attention also because the U.S. is the world's biggest buyer of Japanese exports.
Looking forward, "it is important that overseas economies pick up while domestic demand is resilient, and that the economy move to a phase led by domestic demand and external demand as a pair of wheels," Mr. Nakaso said.
But he made it clear that the BOJ maintained its generally positive view over foreign economies, despite the downward revisions to global growth prospects announced a day before by the International Monetary Fund.
"While each country or region has its own risk factors, it is expected that overseas economies--most notably the U.S. economy--will generally start picking up gradually," Mr. Nakaso said. He also played down concerns that developing nations could suffer a kind of the financial crisis that battered Asian countries in the late-1990s.
Mr. Nakaso also said the BOJ's aggressive easing policy introduced in April has worked well so far, holding down domestic bond yields, raising people's inflation expectations and lowering interest rates adjusted for price changes. The central bank is "likely" to hit its inflation target somewhere between October 2014 and March 2016, he said.