Kozo Yamamoto, a member of Japanese Prime Minister Shinzo Abe’s ruling Liberal Democratic Party (LDP) says that the planned increase in Japan’s sales tax is essential to keeping the momentum of the chronically stagnant Japanese economy. Yamamoto, a tax panel member of the LDP whose pro-monetary easing ideas Abe has cited as an influence for his “Abenomics”, says that the failure to increase Japan’s sales tax could lead to overseas investors to unloading their Japanese assets, compromising what positive effects the economic policies has had on the current market.
Yamamoto has revealed that he had urged the premier to go ahead with the scheduled increase to 8 percent from 5 percent next April. The increase of the tax will not affect the battle to escape deflation, he said in an interview yesterday. “The tax increase has nothing to do with deflation,” Yamamoto said. “Deflation is a monetary phenomenon. The Bank of Japan is dealing with this actively and it should continue to do so,” he added, alluding to the BOJ’s continuous efforts of buying about 70 percent of planned bond issuances from Japan to try to achieve a 2 percent inflation rate within two years.
Yamamoto has instead called for an extra spending package of 4 to 5 trillion yen (as much as US$50.2 billion) to offset the tax increase. “Investors are asking whether Japan really has the will to rebuild its finances,” Yamamoto said. “If we don’t go ahead, it’s highly likely they will pull out of Japan.” As the sales tax increase has been passed as law, only the prime minister can have a say on whether it should be stopped or postponed. Abe is set to decide by October 1 whether to stick with the current plan after listening to arguments from business leaders and taking into consideration the economic numbers and data until September.