U.S. Treasury Secretary Jack Lew urged Japan Wednesday to compile another stimulus package or take other measures if signs of an economic slowdown emerge from the recent consumption tax hike.
"The value-added tax is something that obviously has the potential to slow the economy," Lew said in an interview with CNBC television.
The sales tax rose to 8 percent from 5 percent on April 1. A second rise, due October 2015, has been approved by the Diet and will double the rate to 10 percent.
The International Monetary Fund cited concern about the slowdown expected from the tax hike in its World Economic Outlook released Tuesday.
Lew said the U.S. has encouraged Japan to look at offsetting policies to ensure the increase will not hamper progress by Prime Minister Shinzo Abe's government to get the country out of chronic deflation and prop up the economy.
"They need to stay vigilant in that and respond if they see signs of it," Lew said of the possibility of a slowdown.
Speaking of the need for Japan to improve its fiscal health, Lew said it should seek "a balance between getting your fiscal house in order and keeping your short-term economic position where it needs to be."
Lew also called on Abe's government to follow through on so-called "third arrow" structural reforms, to "create more sustainable demand in Japan." The first two arrows of his economic program are aggressive monetary easing and the usual fiscal stimulus.