- POSTED: 11 Oct 2013 01:28
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A default by the United States on short-term Treasury bonds would not affect the Bank of Japan's acceptance of US bonds to secure loans, the bank's chief said Thursday.
NEW YORK CITY: A default by the United States on short-term Treasury bonds would not affect the Bank of Japan's acceptance of US bonds to secure loans, the bank's chief said Thursday.
"First, I don't expect a US default," Haruhiko Kuroda, governor of the Bank of Japan, said in response to a reporter's question.
"Second, even if it happens, that does not affect our collateral policy."
Kuroda's comments came during an appearance to discuss Japan's aggressive monetary stimulus policies at the Council on Foreign Relations, a New York think tank.
Japan's holdings of US Treasuries have been estimated at over US$1 trillion. US Treasuries are widely accepted by central banks as a form of insurance from a lender in case of a default.
Kuroda cited the US budget impasse as a potential risk to the global economy and to Japan's economic recovery.
The US could grow by 3 per cent "unless the ongoing fiscal stalemate delays the economic recovery," he said.
Kuroda said Europe's economy appears to have bottomed out, but he expects a slow recovery there. China continues to show solid growth, he said.
Overall, the global economy is growing "steadily, but slowly," Kuroda said.
Kuroda described Japan's economic resurgence as on track, thanks in part to an aggressive monetary policy championed under his watch that combines asset purchases, low interest rates and a 2 per cent inflation target.
Kuroda said additional stimulus measures were possible under hypothetical scenarios. But they are a "bit premature" to discuss at this point.
Past Bank of Japan efforts at stimulating the economy through low interest rates were harmed by a zero-inflation target and the weak state of Japan's banks compared with today's institutions, Kuroda said.
Growth in the Japanese economy had been anemic for more than two decades as the problem of deflation, or falling prices, depressed investment and consumption.
But early indicators show that the Bank of Japan's contribution to Abenomics, an aggressive program under Prime Minister Shinzo Abe to spur growth, are paying off, he said.
These positive readings include better consumer confidence, business confidence, inflation expectations, the selling of corporate bonds, a higher stock market and an increase in initial public offerings.
"The economy is on track, not only financial markets, but the real economy," Kuroda said.
Kuroda said long-term interest rates might "eventually" go up if the country is successful in reaching its inflation targets. But the country's goal will be to "contain" this rise with low or even negative interest rates for as long as the stimulus program is in place.
Kuroda reiterated support for an Abe plan to raise consumption taxes. He predicted the government would undertake structural reforms in the coming years.