Japanese markets closed down overnight as the Bank of Japan resisted calls for further monetary easing, choosing to wait and observe the impact of the recent rise in consumption tax.
Last week Japan hiked is consumption tax, also known as sales tax, from 5 per cent to 8 per cent.
Some experts had expected the BoJ to attempt to balance out the negative economic effects of this tax rise with further quantitative easing. But the Bank’s monetary policy committee last night voted unanimously to keep its QE at its current level of adding 60trn to 70trn yen per year.
BoJ governor Haruhiko Kuroda said that while the consumption tax hike will likely hit Japan’s growth in the second quarter of the year, he expected an immediate rebound in the third quarter.
The Japanese Nikkei 225 index fell by 1.4 per cent last night and is now down by nearly 10 per cent so far this year.
Gautam Batra, investment strategist at Signia Wealth, said the markets had expected the BoJ to “accelerate its quantitative easing plans”, but said Mr Kuroda is “stuck in wait and see mode”.
Mr Batra said it was now “unlikely we will see any policy changes until the next inflation report in July” and said the markets may “struggle” while investors “await further details on Prime Minister Abe’s stalled drive for reform referred to as the ‘third arrow’”.
Nancy Curtin, Chief Investment Officer of Close Brothers Asset Management, warned that the BoJ’s wait-and-see approach risked it “falling further behind the ball”.
Ms Curtin pointed out that when the tax was last hiked, in 1997, it knocked 1 per cent from Japan’s GDP in the following quarter.
She warned that if that proved to be the case again this time around, “any significant delay in providing additional support measures might prove costly in the longer term”.
