UPDATE 2-BoJ's Kuroda says does not expect U.S. to default
By Daniel Bases and Luciana Lopez
NEW YORK Oct 10 (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Thursday that he does not expect the United States to default on its debt.
"I don't expect U.S. default," Kuroda said.
And even should a default happen, he added, it "does not affect our collateral policy."
The U.S. government is expected to hit its borrowing limit by Oct. 17 but a divided Congress might prove unable to raise that ceiling. That, in turn, raises the specter of a default.
Japan, with $1.135 trillion of U.S. Treasuries, is the second largest creditor of the United States behind China's $1.277 trillion in holdings, according to the latest U.S. data.
Both nations have implored Washington to resolve the budget and debt ceiling deadlock or risk damaging the global economy, let alone cut the value of their trillions worth of U.S. Treasury holdings.
A U.S. default would wreak havoc on the world financial system given Treasuries and the U.S. dollar serve as global benchmarks.
Kuroda, speaking at the Council on Foreign Relations before attending weekend meetings of the International Monetary Fund and World Bank in Washington, also said the Bank of Japan would do whatever necessary to achieve its 2 percent inflation goal.
"But at this stage the economy is on track, and I don't think I should say anything concrete about potential, possible measures," he added.
In April the BOJ launched an aggressive monetary policy to achieve a stable 2 percent inflation rate within two years. The world's third-biggest economy has struggled with deflation since the late 1990s.
The BOJ's massive stimulus plan, which promises to inject some $70 billion a month into the economy, has contributed to a weakening of the nation's currency, which in turn helps its export market.
The yen has fallen nearly 12.5 percent against the U.S. dollar and roughly 15 percent against the euro since the start of the year.
Kuroda stuck to the long-standing script that the BOJ has no specific target for the value of the yen against its major trading partners' currencies.
Asked by an investor whether or not the BOJ would boost its already sizeable stimulus plan if basic wage levels don't increase during the annual spring labor negotiations, Kuroda reiterated the bank's commitment to reaching its inflation target by April 2015.
"If that becomes difficult to achieve, we may strengthen our QQEs (quantitative and qualitative monetary easing) but as I said, we are on track and we expect even the basic wages would start to rise in the spring offensive next year. At this stage, such a hypothetical question is difficult to answer," he said.
Markets are concerned that the government's decision to increase the sales tax to 8 percent from 5 percent next April could erode the gains made so far from Prime Minister Shinzo Abe's three pronged economic stimulus plan dubbed "Abenomics."
When launched in April, the plan outlined first a massive monetary stimulus plan, followed by flexible fiscal policies and backed up with the promotion of private investment.
In order to soften the blow of the tax hike, the government is adding a 5 trillion yen ($51 billion) stimulus package.
"(The tax) will not undermine the underlying growth trend of the economy," Kuroda said.
He reiterated the need to reduce the size of Japan's huge public debt, currently more than double the size of its $5 trillion economy, which is the biggest among major industrialized nations.
The BOJ expects the sales tax hike to shave about 0.7 percentage point off growth, and estimates the economy will expand 1.3 percent in the business year beginning in April 2014.