REPEAT: MNI: If Tax Hike Delay, BOJ Sees Limited JGB Impact

Repeats Story Initially Transmitted at 05:05 GMT Jun 7/01:05 EST Jun 7

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan accepts the government should raise the

consumption tax in October to underpin fiscal stability, but if legislators

decide not to act, any subsequent dip in confidence across financial markets

will be short-lived, MNI understands.

     BOJ Governor Haruhiko Kuroda has repeatedly said fiscal policy decisions

are for the government, but the central bank certainly thinks a hike in the

consumption tax from 8% to 10% will sustain fiscal discipline, especially as

measures are being taken to mitigate any impact on consumer spending.

     However, there is certainly an argument building in Tokyo that a delay in

the hike could be needed, as a further deterioration in the global economy in

recent months could hit both domestic corporate and household sentiment.

     Although any delay in the consumption take hike could dent sentiment in the

bond markets, the subsequent downturn in asset prices would be temporary. There

is a concern, though, that a delay will have a negative impact on Japan's

sovereign credit ratings, as the fiscal position will deteriorate.

     History shows that previous downward revisions to ratings had only a brief

impact on JGB prices as the BOJ's ongoing market action kept yields in a narrow

range and bank officials are sure that would be the case again.

     --RATINGS

     Japan's debt-to-GDP ratio is more than 237%, the highest level among the G7

nations. Just under 88% of the outstanding balance of JGBs worth Y1,111 trillion

was held by Japanese financial institutions as of the end of December 2018.

     Speaking earlier this week, Finance Minister Taro Aso said the government

must prepare for a ratings downgrade if the tax hike is delayed. Prime Minister

Shinzo Abe met private-sector economists for briefings.

     S&P currently rates Japan A+ with a positive outlook, but has said it will

revisit the outlook if "the process of fiscal repair (is) to slow significantly

or stagnate."

     Moody's Investors Service also currently rate A+ with a stable outlook and

have explicitly warned they would consider lowering Japan's ratings if the

consumption tax hike is postponed.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com