Japan to keep tax hike despite falling wages | Business| Economy and finance news from a German perspective | DW | 29.03.2016
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Japan to keep tax hike despite falling wages

Fresh economic data from Japan have economic pundits wondering whether Prime Minister Shinzo Abe can afford another sales tax hike planned for April next year. But Abe has confirmed the tax hike will push through.

Inflation-adjusted wages in Japan were down 2.4 percent in February from a year earlier, the Ministry of Internal Affairs and Communications announced Tuesday. The figure marked the sixth monthly decline in a row.

The government also reported the unemployment rate had edged up to 3.3 percent year-on-year, increasing for the first time in six months, up from 3.2 percent in January.

The ministry said major contributors to the slight rise in joblessness were the farming and forest industries, which eliminated 80,000 jobs, while manufacturers lost 60,000 positions in February.

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The weak economic data have fueled speculation that a consumption tax hike planned for April 2017 was going to postponed - which Prime Minister Shinzo Abe has since denied.

"There is no change to the tax hike plan next year unless there are situations like the Lehman shock or a massive earthquake," Abe said in a news conference on Tuesday, ahead of the parliament's formal approval of the government's fiscal 2016 budget.

Abe's government has struggled to achieve growth in the economy, which has seen two contractions in the last three quarters.

In late 2014, Abe caught markets and voters off guard when he postponed an unpopular sales tax hike and called snap elections. But with wage growth limp and emerging economy slowdowns hitting Japanese producers and employees, the only surprise would now be if Abe didn't repeat the play in April when the tax hike is due.

A plan pushed by Abe's predecessor, the sales tax increase has never had pride of place in his Abenomics recipe for reviving the sluggish domestic economy, a mix of hyper-easy monetary policy, government spending and structural reforms.

But conservatives insisted a sales tax hike would be vital to rein in bulging public debt and social security costs.

hg/jd (dpa, Reuters, AP)

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