By Leika Kihara
WASHINGTON (Reuters) – Japanese Finance Minister Taro Aso said on Thursday the government was ready to deploy fiscal stimulus steps flexibly if the economy needed fresh support to fend off risks from slumping global demand and the U.S.-China trade war.
But he said Japan’s economy remained on course for a moderate recovery thanks to robust domestic demand, signalling that no immediate, additional measures were necessary to ease the pain from a sales tax hike that kicked off in October.
“Given uncertainty over the global economy, exports are falling and weighing on manufacturers’ output. But the weakness has yet to spread to non-manufacturers or domestic demand,” Aso told reporters after attending a Group of 20 finance leaders’ working dinner.
“If we need to compile some form of an economic stimulus package, we are ready to take various types of fiscal measures flexibly,” he said.
While global risks are nowhere near those seen in the aftermath of the collapse of Lehman Brothers in 2008, Japan must deploy a mix of fiscal and monetary stimulus measures when fighting the next crisis, Aso added.
“When you look back at the problems Japan faced, including deflation, they can’t be fixed by monetary policy alone. You need a coordinated monetary and fiscal response,” he said.
On the global economy, Aso said he still expected a moderate recovery to continue through next year.
But he added that he agreed with Bank of Japan Governor Haruhiko Kuroda, who told reporters in Washington the timing of a pickup in global growth was likely being delayed.
Prime Minister Shinzo Abe proceeded with a twice-delayed increase in the sales tax rate to 10% from 8% in October as part of efforts to rein in Japan’s huge public debt.
The government has taken steps to ease consumer pain due to the tax, such as offering shopping vouchers, as the previous hike to 8% from 5% tipped the economy into recession.
Still, some analysts worry the higher levy may add to pains for an export-reliant economy already feeling the pinch from the U.S.-China trade war.
International Monetary Fund (IMF) Deputy Managing Director Mitsuhiro Furusawa has said Japan can ramp up fiscal stimulus if the hit to the economy from October’s sales tax hike proves bigger than expected.
(Reporting by Leika Kihara; Editing by Chang-Ran Kim and Christopher Cushing)