After years of criticism for public- works spending that rewarded political constituents at the cost of adding debt, Japan succeeded in cutting the largesse in half. Now, that legacy of success is hampering an economic rebound.
The Bank of Japan will probably leave policy unchanged this week to gauge whether cutting interest rates to near zero and pledging to buy financial assets will shield the economy from the yen’s advance to a 15-year high.
The Bank of Japan may expand stimulus this month after lawmakers escalated pressure for extra action by blocking a candidate for the bank’s board and renewing calls for a more “proactive” monetary policy.
The Bank of Japan may seek to delay implementing further monetary easing until at least October, waiting to see whether the yen’s gains and a U.S. slowdown will force it to abandon a forecast for a sustained recovery.
Japan’s slowing recovery from its worst postwar recession is signaling the world’s second-biggest economy may be too weak to sustain the higher consumption taxes under consideration by Prime Minister Naoto Kan .