Japan Inc sees BOJ easing further as sales-tax hike looms: Reuters poll

TOKYO Mon Dec 9, 2013 8:03pm EST

Pedestrians walk past the Bank of Japan building in Tokyo October 31, 2013. REUTERS/Yuya Shino

Pedestrians walk past the Bank of Japan building in Tokyo October 31, 2013.

Credit: Reuters/Yuya Shino

TOKYO (Reuters) - Almost two-thirds of Japanese firms expect the Bank of Japan will increase its stimulus in the first six months of 2014, a Reuters poll showed, underscoring the pressure on the central bank to remain the engine of growth under Abenomics.

The results of the monthly Reuters Corporate Survey also showed broad support for the toughest economic policy decision Prime Minister Shinzo Abe is likely to face in the year ahead - pushing ahead with a further sales-tax increase to 10 percent.

Financial markets are speculating whether the BOJ will launch a second round of quantitative easing next year after economic growth slowed sharply in the third quarter and inflation - albeit at a five-year high - remains well short of the central bank's target.

Businesses are also looking to additional BOJ stimulus to help the economy withstand an already approved sales-tax increase in April. Abe and others have argued that higher taxes are needed to rein in Japan's huge public debt even at the risk of slowing the economy in the short term.

"It will be an adrenaline shot to counter the negative impact of the sales tax hike," said an executive at a steelmaker who responded to the survey, referring to possible further easing by the central bank.

The national sales tax is set to rise to 8 percent from 5 percent in April, increasing prices for consumers and likely prompting some to save rather than spend. Almost half of the survey respondents, however, expect the negative impact of the tax hike on consumer spending to have faded within six months.

By the autumn, the Abe administration will be in the early stages of considering whether to press ahead with a second increase that would take the sales tax to 10 percent in October 2015, according to the timeline officials have described.

Currently, the central bank buys $70 billion a month in government bonds under its easing program to help regalvanise the world's third-biggest economy and cast off 15 years of deflation.

BOJ officials have said privately they do not expect to have enough data to decide if further easing is needed until at least the middle of next year. But markets are looking for a move as soon as April when the central bank produces its next growth and price forecasts.

FISCAL REFORM

In the survey, fiscal reform was the top choice for 97 of the 252 companies that ranked their top three priorities for Abe's 2014 economic policy - ahead of restarting nuclear power plants, taking steps to increase wages or focusing on improving diplomatic ties with China and South Korea.

"Continuous growth can't be expected if a path of fiscal reform is not presented," said an executive at a chemicals firm.

The sales-tax hike in April will be the first such increase since 1997, when a rise to the current 5 percent was blamed for botching an economic recovery. To cushion the blow this time, the Abe administration has announced a stimulus package worth 5 trillion yen ($49 billion).

The April hike to 8 percent is projected to raise an additional 8 trillion yen per year.

At more than twice the size of the economy, Japan's public debt of over $10 trillion is the largest the industrial world. The country also runs a huge annual budget deficit of 10 percent of GDP.

The government has committed to eliminating the primary budget deficit, which excludes debt servicing costs, by 2020, although ratings agencies see risks to that forecast.

The Reuters Corporate Survey polls upper management at 400 companies each capitalized at more than 1 billion yen. The firms, which are split evenly between manufacturers and non-manufacturers, are not required to answer every question, and provide responses on condition of anonymity.

In the poll conducted between November 22 and December 4 for Reuters by Nikkei Research, executives at 261 companies responded at least in part.

The Reuters Corporate Survey was taken alongside the monthly Reuters Tankan survey, which showed on Monday that confidence at Japanese manufacturers rose to a three-year high in December and is predicted to continue increasing.

(Editing by Kevin Krolicki and Chris Gallagher)

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