Thursday, October 3, 2013

The Bank of Japan has held off fresh monetary easing measures, but its chief says he is ready to act if the economy took a hit from a sales tax hike or US debt default.

After a two-day policy meeting, Bank of Japan (BoJ) officials on Friday issued an upbeat statement which said the economy was still "recovering moderately" while overseas economies were "heading toward a pick-up".

The bank had been widely expected to hold fire as it studies how its unprecedented monetary easing plan, which pumps huge amounts of money into the financial system, was rippling through the world's number-three economy.

But bank governor Haruhiko Kuroda said he was ready to pull the trigger on fresh policy moves if the economy heads south.

"We will review both upside and downside risks," Kuroda told reporters in Tokyo.

"If something happens, naturally we will take whatever monetary policy actions are necessary."

The meeting came just days after the BoJ published its Tankan survey, which showed business confidence in Japan had soared to a more than five-year high in the past three months - good news for Prime Minister Shinzo Abe's bid to revitalise the economy.

The closely watched indicator was seen as key to Abe's decision this week to press on with a plan to hike sales taxes to 8.0 per cent, from 5.0 per cent, in April.

The rise is viewed as crucial for Japan to shrink what is the rich world's heaviest public debt burden.

But some fear it will derail the premier's economic policy blitz, dubbed Abenomics, which has sharply weakened the yen and boosted profits at major exporters such as Toyota and Sony.

Japan's long-suffering economy is growing at a 3.8 per cent annualised rate - outpacing other G7 nations - thanks to government stimulus spending and central bank monetary easing of up to Y70 trillion ($A768.98 billion) a year.

The International Monetary Fund, among others, have been calling on Tokyo to put its books in order, after international ratings agencies downgraded Japan's credit in recent years.

"The chances of the US starting (to wind down its stimulus) this year continue to dwindle," National Australia Bank (NAB) said, noting there were just two more policy meetings before year's end.

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