Abe mulls halting sales tax hike as deflation looms | Business| Economy and finance news from a German perspective | DW | 27.05.2016
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Abe mulls halting sales tax hike as deflation looms

Japanese PM Shinzo Abe may delay an increase in sales tax, fearing it would further trouble the struggling economy. New figures show that consumer prices in Japan have slipped for the second straight month.

According to a report by the news agency Reuters on Friday, Abe was likely to delay the tax hike by one to three years.

Three sources with direct knowledge of the matter told the news agency that the Japanese Prime Minister would meet with finance minister Taro Aso on Sunday, and Natsuo Yamaguchi, head of coalition partner Komeito, on Monday, to decide how long to delay the tax hike.

The news comes as the world's third largest economy continues to struggle amid falling consumer prices, which dipped 0.3 percent in April - the second straight month of decline, according to latest figures released Friday.

The negative reading offers fresh evidence that the government's bid to revitalize the economy by means of ultra-loose monetary policy and massive state spending appears to be faltering.

Japan in crisis?

Originally, Abe planned to raise the sales tax from eight to 10 percent in April 2017, in attempt to pay down some of the country's massive debt accumulated during the past years of higher spending.

Underscoring his determination, he has repeatedly said he would push ahead with the hike unless there is an event on the scale of "the collapse of Lehman Brothers or a major earthquake."

But in a plenary session of the G7 leaders' summit Thursday, Abe argued that the global economy faced a risk of falling into a "crisis," drawing comparisons with the mood in 2008 just months ahead of Lehman's collapse.

Masaaki Kanno, managing director of economic research at JPMorgan, said in a commentary that Abe's reference to the Lehman crisis was important "in the context of whether he will postpone the scheduled tax hike."

Abe's statement "raises the odds that the scheduled hike will be postponed," Kanno added.

On Friday morning, however, a Japanese government spokesman dodged questions about Abe's intentions, saying the government would make "an appropriate decision at an appropriate time."

Japan's economy has largely defied more than three years of government and central bank stimulus, expanding by a meager 0.4 percent between January and March after a contraction in the last three months of 2015.

uhe/jm (AFP, Reuters, dpa)

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