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Faltering GDP adds pressure to Abe to call off sales tax hike


Staff Writer

The announcement Monday that the economy contracted for a second consecutive quarter raised the political pressure on Prime Minister Shinzo Abe to delay the consumption tax hike planned for next October.

The negative economic data also provided ammunition for opposition lawmakers to bash the Abe administration, saying his “Abenomics” growth policies, which boosted stock prices, have failed to improve the overall outlook and people’s standards of living.

“We didn’t expect a good figure, but this is far worse than we had imagined,” said Yukio Edano, secretary-general of the Democratic Party of Japan, the largest opposition group.

Gross domestic product for the July-September period fell far more sharply than predicted by many economists, shrinking 1.6 percent on an annualized basis.

At a news conference Monday, Chief Cabinet Secretary Yoshihide Suga admitted the result was far worse than predicted. He said the lingering negative impacts of April’s consumption tax hike to 8 percent from 5 percent continued to drive down consumer spending, dampen corporate capital investment and restrict overall housing starts.

The administration was to consider how it will react after Abe, who must decide soon whether to hike the sales tax to 10 percent next October, returns from an overseas trip later Monday, Suga said.

Abe is set to attend a meeting Tuesday of the Council on Economic and Fiscal Policy, one of his key advisory panels. He is expected to announce some countermeasures to prop up the economy, as well as his intention to dissolve the Lower House.

Monday’s GDP data are likely to further influence Abe to delay the planned tax hike.

Abe apparently favors an early election in December because it would likely reduce damage to his ruling Liberal Democratic Party. In the spring, his administration plans to submit to the Diet controversial bills related to national security, including on the decision to reinterpret the pacifist Constitution.

Komeito, the LDP’s junior coalition partner, also reportedly favors an early election because it needs to concentrate on important local polls planned nationwide next spring.

Kenji Eda, co-leader of Ishin no To (Japan Innovation Party), said Monday that Abe should not engage in political games by calling a snap election amid such a dire economic time.

“The biggest cause (for the economic contraction) is April’s consumption tax increase, which ended in failure,” Eda said in a written statement to the press.

Abenomics consists of a set of “three arrows” — ultra-aggressive monetary easing, more government spending and structural economic reforms to jack up growth. Opposition lawmakers argue Abe effectively has only implemented the first and second arrows, the effects of which will last only for a limited period, while failing to carry out deep structural economic reforms, such as deregulation to encourage the creation of new industries.