G7 to examine global economic risks
Group vows policy mix
TOKYO, May 24, (Agencies): Leaders from the Group of Seven advanced economies will examine potential risks to the global economy when they gather this week for their summit in western Japan, government sources told Reuters.
While the global economy was not at a critical stage, uncertainty was rising and the G7 leaders were expected to promote a combination of monetary, fiscal and structural policies to spur growth in their communique, the sources, who were not authorised to speak to the media, said.
“Uncertainty is rising. We are going to (discuss) downside risks to the global economy,” one of the two sources told Reuters on condition of anonymity.
The G7 groups Britain, Canada, France, Germany, Italy, Japan and the United States.
With Britain and Germany resisting calls for fiscal stimulus, Japanese Prime Minister Shinzo Abe is set to urge the G7 leaders to adopt a flexible fiscal policy, taking into account each country’s own situation, the sources said.
The G7 leaders were also expected to reaffirm their previous commitment to stability in the foreign exchange market, they said.
After hosting a G7 summit this week and escorting US President Barack Obama on a visit to Hiroshima, Japanese Prime Minister Shinzo Abe was widely expected to postpone an unpopular sales tax hike, call a snap election and seek big wins in both houses of parliament.
But G7 policy rifts, conflicting advice from advisers and domestic outrage after the arrest of a US military base worker in connection with the killing of a woman on Okinawa, are clouding the mainstream forecast.
“It’s politics, isn’t it. Not everything goes according to the schedule we had in mind,” Deputy Chief Cabinet Secretary Koichi Hagiuda told Reuters on Tuesday.
Full agreement on macro-economic policy looks hard to come by at the May 26-27 summit, where topics from terrorism and refugees to cyber security will also be discussed. Lobbying by Beijing could soften a statement on maritime security, including references to China’s assertiveness in the East and South China Seas, site of rows with Japan and Southeast Asian nations.
Abe had been hoping, experts said, to use a G7 agreement on the need to bolster the world economy with fiscal steps as a launch pad for a domestic package including the probable postponement of a planned sales tax rise, replaying a strategy he used successfully before a 2014 snap lower house election.
The government had planned to raise the levy to 10 percent from 8 percent in April unless there was a financial crisis on the scale of the Lehman Brothers collapse or a major natural disaster.
But Abe has also said a rise would be meaningless if tax revenues fell, fanning speculation he would put off the rise for a second time and call a lower house poll in hopes of locking in a two-thirds majority in both chambers. That could open the path to his long-held goal of revising Japan’s pacifist constitution.
Then on Saturday, Finance Minister Taro Aso said he had told US Treasury Secretary Jack Lew that the tax rise would go ahead as planned. Hagiuda echoed that view.
“It has been decided (to raise the tax) from next April,” Hagiuda said. “As long as no special situation arises, wouldn’t going ahead as planned be the better way to win the trust of international society?”
Some domestic proponents of the premier’s reflationary “Abenomics” recipe have also recently changed their tune, urging Abe to implement the tax rise and offset any harm to consumption with a big spending policy.
And on Tuesday, another close aide to Abe, Masahiko Shibayama, told Reuters fiscal policy should be deployed to offset the impact of the tax rise, and monetary policy could also help.