Skip to main content

Advertisement

Advertisement

Japan PM expected to go ahead with sales-tax hike

TOKYO — Bank of Japan (BoJ) officials expect Prime Minister Shinzo Abe to proceed with a planned sales-tax increase next year to maintain confidence in the government’s finances, said sources familiar withthe discussions.

TOKYO — Bank of Japan (BoJ) officials expect Prime Minister Shinzo Abe to proceed with a planned sales-tax increase next year to maintain confidence in the government’s finances, said sources familiar withthe discussions.

Some officials said the central bank would be prepared to boost stimulus if necessary should the world’s third-biggest economy require more support following a higher levy, said the sources, who asked not to be named because the talks are private.

Mr Abe is set to decide by the end of the year whether consumers and companies can bear the tax burden rising to 10 per cent.

Weakness in production and household spending since Mr Abe lifted the levy to 8 per cent in April underscores the risks of his effort to steer Japan out of a two-decade slump while trying to contain the world’s biggest debt load.

“The next sales-tax hike is looking increasingly shaky,” said Mr Masamichi Adachi, a senior economist at JPMorgan Chase and former central bank official. The BoJ would rather boost stimulus than have the government postpone raising the levy, Mr Adachi said.

Gross domestic product shrank an annualised 6.8 per cent in the second quarter from three months earlier, as consumers and businesses cut spending following the sales-levy bump, the first since 1997.

The rebound since then has lacked vigour. Industrial output and household spending were weaker than estimated in July, data last week showed.

Auto sales fell to a three-year low last month, industry figures released yesterday showed.

The underlying trend in the economy is solid, BoJ Governor Haruhiko Kuroda said on Aug 22 in Jackson Hole, Wyoming, where central bankers had gathered. The BoJ would adjust policy if inflation undershot its 2 per cent goal, he said.

The economy is on a moderate recovery trend, the Cabinet office said in a report on Aug 26, maintaining its assessment. Mr Kuroda has called on the government to put its finances on a healthy footing.

“It’s an essential pre-condition for sustainable growth of the Japanese economy to establish a sustainable fiscal structure,” Mr Kuroda told reporters in June.

The central bank strongly hopes for a steady implementation of steps toward fiscal consolidation, he said.

The BoJ will hold a two-day meeting starting tomorrow. Thirty-five per cent of the 34 economists surveyed by Bloomberg News from July 30 to Aug 1 predicted the central bank would boost stimulus by the end of the year.

Of those polled, 26 per cent forecast a move next month, the top pick for action.

The BoJ began its unprecedented easing in April last year in a bid to generate 2 per cent inflation. The stimulus weakened the yen and set Japan on course to emerge from deflation.

Consumer prices excluding fresh food — the BoJ’s main inflation gauge — climbed 1.3 per cent in July from a year earlier, stripping out the effects of the higher sales levy, a BoJ estimate showed. BLOOMBERG

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.