Japan still set for 2017 tax hike despite struggling economy

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The central government still plans to raise the national sales tax again in 21 months, even as the economy struggles to gain momentum following the recession caused by a hike in the levy last year.

“Unless something really unusual like a large economic shock happens, if things are in a normal state, we’ll definitely raise the sales tax,” Economy Minister Akira Amari said in an interview in Tokyo on Thursday. “It’d be best for the government to raise the sales tax after declaring an end of deflation.”

Amari’s comments underscore the pressure on Prime Minister Shinzo Abe’s government to consolidate the country’s finances as its debt burden swells.

His cautious tone on deflation comes as the Bank of Japan’s efforts to stoke faster price gains run into headwinds in the form of weak consumer sentiment and low oil prices. The most recent reading of the BOJ’s preferred inflation gauge was 0.1 percent.

The minister also said that China’s economic slowdown poses a bigger risk to Japan than any financial turmoil flowing from the crisis in Greece.

Amari, who is spearheading the government’s efforts to raise growth and reinvigorate the economy, reiterated that the weak yen has both positive and negative effects for the economy. He added that it was hard to say at what level the pros and cons would be unbalanced.

“It’s important that foreign exchange rates reflect economic fundamentals and stay stable, without abrupt moves,” Amari said.

Bank of Japan board member Yutaka Harada said last month that inflation might not accelerate quickly enough to reach the BOJ’s 2 percent goal within the latest projected time frame of April to September of 2016.

Amari declined to comment on whether the BOJ would need to increase monetary stimulus further to meet the price goal, while saying he expected the central bank would take a careful approach to reaching its 2 percent inflation target.

The most recent data for industrial production show this key indicator of economic strength dropping, while export growth has slowed. JPMorgan Chase & Co. economists have predicted the economy will slow to a standstill this quarter. Their counterparts at BNP SA say a contraction is possible.

Amari said that while the economy is headed for recovery, there is some seesawing, which may occur in this quarter following the first quarter’s growth.

The economy expanded an annualized 3.9 percent in the first quarter from the previous three months.

  • R0ninX3ph

    If they are not going to do anything to actually push minimum wages higher… All they are going to see is less spending like they saw after the consumption tax was raised to 8%.

    If the wages do not increase, people will ultimately spend less, because they are forced to.