Japan Economy: Sales Tax Will Increase ‘By All Means,’ Says PM Abe

JAPAN ECONOMY – On Tuesday, Nikkei newspaper reported that Japanese Prime Minister Shinzo Abe pledged that there would be sales tax hike next year “by all means.” Abe also said that there would be steps to soften the expected hit on consumption from the higher levy.

After winning the lower house election, Liberal Democratic Party has pledged of using proceeds from the sales tax increase in order to make the social welfare system of Japan more sustainable, according to Abe.

“We must accomplish this by all means,” Abe said. He referred to his plan to increase the tax to 10 percent in October 2019.

Following the 8% increase that tipped Japan into recession, Abe has temporarily canceled the hike twice.

Based on some analysts, the tax hike, which was scheduled next year, could affect the fragile private consumption. Moreover, Abe said that the tax hike’s impact on 10% will be lesser than the 8% increase. He added that the Japan government will take measures in moderating an expected downturn in consumption that will happen following the hike.

When asked about the possibility of putting an end to deflation before inflation hits the Bank of Japan’s 2 percent target, Abe said that job growth would be the key for the decision.

“Japan may not have achieved the (BOJ’s) inflation target, but what we are really focused on is employment,” Abe said.

Due to the robust exports and capital expenditure, the economy of Japan advances toward its longest postwar expansionary period. Furthermore, the jobless rate reached record-low levels which some analysts believe that they will come near full employment.

However, inflation has stayed detached from the price target of the BOJ. This is amid the lingering suspicions of companies on prices for fear of scaring away consumers who are cost-sensitive.

Japan Economy: Japan finmin expects 2019 budget to record high for welfare, defense spending

On Tuesday, Japanese Finance Minister Taro Aso said that the initial 2019 budget requests are expected to reach a record high of $918 billion to boost spending on welfare and defense.

Aso said that the finance ministry is still on the process of finalizing the figure for 2019. Moreover, he said that the overall expected record high in spending is due to the rising planned welfare spending and an increase request on the defense ministry’s budget.

“An expected increase in welfare spending is a big factor behind next fiscal year’s budget request. We have to figure out how to accommodate the defense ministry. There are also items we need to include related to the next sales tax hike,” Aso said.