Ja­pan's PM de­lays sales tax hike un­til 2019

The Pak Banker - - MARKETS/SPORTS -

Ja­panese Prime Min­is­ter Shinzo Abe plans to de­lay an in­crease in sales tax by two and a half years, a gov­ern­ment of­fi­cial said on Sun­day, as the econ­omy sput­ters and Abe pre­pares for a na­tional elec­tion. Abe told Fi­nance Min­is­ter Taro Aso and the sec­re­tary gen­eral of his rul­ing Lib­eral Demo­cratic Party, Sadakazu Tani­gaki, on Satur­day of his plan to pro­pose de­lay­ing the tax hike for a sec­ond time, un­til Oc­to­ber 2019, said the of­fi­cial, who was briefed on the meet­ing.

The prime min­is­ter, who has promised to an­nounce steps on Tues­day to spur eco­nomic growth and pro­mote struc­tural re­form, is also ex­pected to or­der an ex­tra bud­get to fund stim­u­lus mea­sures, just two months into the fis­cal year and on the heels of a sup­ple­men­tary bud­get to pay for re­cov­ery from re­cent earth­quakes in south­ern Ja­pan.

Af­ter chair­ing a summit of Group of Seven lead­ers on Fri­day, Abe said Ja­pan would mo­bi­lize "all pol­icy tools" - in­clud­ing the pos­si­bil­ity of de­lay­ing the tax hike - to avoid what he called an eco­nomic cri­sis on the scale of the global fi­nan­cial cri­sis that fol­lowed the 2008 Lehman Broth­ers bank­ruptcy. "There is a risk of the global econ­omy fall­ing into cri­sis if ap­pro­pri­ate pol­icy re­sponses are not made," Abe told a news con­fer­ence af­ter the summit. To play its part, Ja­pan "must reignite pow­er­fully the en­gine of Abe­nomics," he said, re­fer­ring to his easy-money poli­cies aimed at get­ting Ja­pan out of two decades of de­fla­tion and fit­ful growth.

Abe has long said he would pro­ceed with a plan to raise the tax rate to 10 per­cent from 8 per­cent next April un­less Ja­pan faced a cri­sis on the mag­ni­tude of the Lehman shock. He said the G7 "shares a strong sense of cri­sis" about the global out­look, with the most wor­ri­some risk be­ing a global con­trac­tion led by a slow­down in emerg­ing economies like China.

Other G7 lead­ers, how­ever, ap­peared to dif­fer with Abe on the risk of a global cri­sis, fu­elling com­ment that Abe was us­ing the G7 to jus­tify de­lay­ing the painful tax hike.

Abe will an­nounce his in­ten­tion to de­lay the tax hike by the end of the cur­rent ses­sion of par­lia­ment on Wed­nes­day, af­ter meet­ing with Komeito, the LDP's ju­nior coali­tion part­ner, the gov­ern­ment of­fi­cial told Reuters.

Ja­pan fell into re­ces­sion af­ter Abe raised the tax from 5 per­cent in April 2014 hop­ing to curb gov­ern­ment debt, and con­sump­tion has still not re­cov­ered. De­spite mas­sive mon­e­tary eas­ing by the Bank of Ja­pan and a se­ries of gov­ern­ment spend­ing pack­ages Ja­pan's growth is weak­en­ing. Core con­sumer prices and ex­ports fell in April, and man­u­fac­tur­ing shrank at the fastest pace since Abe took of­fice in 2012. A poll last week showed most com­pa­nies ex­pect no es­cape from de­fla­tion for the fore­see­able fu­ture.

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