Having seen the latest revised gross domestic product data, sources say Japan Prime Minister Shinzo Abe has decided to push through with the scheduled consumption tax increase to 8% by April next year. But he is also considering implementing a stimulus package of 5 trillion yen so that the increase will not stop the steady inflation of the economy.
Abe has reportedly said it is important that Japan keep its promises to the international community when it comes to fiscal discipline as part of his “Abenomics” strategy to lift the country out of decades of deflation. Among the developed nations of the world, Japan has the worst fiscal health with a public debt which is more than double the country’s GDP. Next year’s tax increase will be the first time since it increased to 5% last April 1997, after it was initially launched at 3% back in 1989.
There was hesitation on Abe’s part, as well as some of his economic advisers, to raise the consumption tax because it might slow down the country’s economic recovery. But after the latest data has come out and coupled with Tokyo‘s winning bid to host the 2020 Summer Olympics, there is an optimism that this will bring about more growth as the country begins various preparations for the world’s biggest sporting event. There are also certain sectors that say if Abe delays the tax increase, Japan’s credibility would be affected and global market participants may let go of government bonds.