Reuters: US Dollar Report: UPDATE 1-BOJ sees global damage if U.S. debt ceiling is not raised

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UPDATE 1-BOJ sees global damage if U.S. debt ceiling is not raised Oct 9th 2013, 03:28 Share this Email Print Reprints Tue Oct 8, 2013 11:28pm EDT * Failure to raise debt ceiling will hit global growth-BOJ Nakaso * Nakaso upbeat on Japan's economy, says recovery on track * BOJ's policy an "ambitious approach in uncharted waters" By Leika Kihara MATSUE, Japan, Oct 9 (Reuters) - Global stocks could plunge and long-term interest rates rise, dealing a severe blow to the global economy, if U.S. politicians do not reach a deal to raise their debt ceiling by mid-month, Bank of Japan Deputy Governor Hiroshi Nakaso said on Wednesday. The warning followed similar comments by the finance minister on Tuesday, signalling Tokyo's worries about the impact on its holdings of more than $1 trillion of U.S. Treasury bonds if the political deadlock is not resolved soon. Nakaso said the standoff was the greatest source of uncertainty for the U.S. economy, which is otherwise enjoying solid growth driven by robust private demand, and a risk to the global economy. "A prompt resolution of the fiscal consultation issue is critical for the global economy, including Japan," he told business leaders in Matsue, western Japan. Redemption and interest payments of U.S. government debt will stop if the debt ceiling was not increased by October 17, which could lead to a U.S. credit rating downgrade, he said. "If that happens, it would have a significant adverse effect on the global economy" by triggering a spike in long-term interest rates, a plunge in stock prices and fluctuations in currency rates, Nakaso said. EXTREMELY AMBITIOUS Outside the U.S. risks, Nakaso was upbeat on Japan's economic outlook, saying the positive momentum seen in wages and household income will continue to support personal spending. Exports were expected to gain strength as overseas economies picked up, and this would help sustain Japan's recovery, he added. The BOJ launched an intense burst of monetary stimulus in April, pledging to double the base money via aggressive asset purchases to achieve its 2 percent inflation target in two years. Nakaso described the policy as an "extremely ambitious approach in uncharted waters" since it attempted to intentionally lift inflation expectations in a country mired in deflation for decades. He was confident it would succeed, saying he expects consumer inflation to reach 2 percent sometime during the latter half of fiscal 2014 through fiscal 2015. The BOJ raised its assessment of the economy last month to say it is "recovering moderately," reflecting strong growth in the second quarter and improvements in business sentiment. Minutes of the BOJ's policy meeting in September showed board members agreed a virtuous cycle spanning from production to income and spending was functioning well. Link this Share this Digg this Email Reprints

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