Japan officials quash speculation sales tax hike may be delayed

By Tetsushi Kajimoto
Japanese Finance Minister Taro Aso holds a news conference after the G-20 Finance Ministers and Central Bank Governors' meeting at the IMF and World Bank's 2019 Annual Spring Meetings, in Washington, April 12, 2019. REUTERS/James Lawler Duggan

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's top government officials vowed on Friday to stick to a planned sales tax hike in October, barring a big economic shock, putting an end to speculation that it could be delayed again.

Koichi Hagiuda, acting secretary-general of Prime Minister Shinzo Abe's Liberal Democratic Party (LDP), had said on Thursday the planned tax hike may be postponed depending on the results of the central bank's next tankan business survey due in July.

His comments fuelled concerns about a further delay in Japan's efforts to finance its bulging social security costs. The country has to support a fast-ageing population and constrain growing public debt - more than twice the size of its economy and the industrial world's biggest.

It also fanned speculation about a possible snap lower house poll to coincide with an upper house election this summer to seek feedback from voters in case Abe moved to delay the tax.

"The sales tax hike to 10 percent is needed the most to secure stable financial resources to pay for social security for all generations," Finance Minister Taro Aso told reporters after a cabinet meeting.

Chief Cabinet Secretary Yoshihide Suga also said the government would proceed with the tax hike unless a big incident such as the shock collapse of Lehman Brothers in 2008.

Hagiuda told reporters on Friday that he was merely expressing his "personal opinion" and did not mean to object to the tax hike which he did not discuss with Abe. However, he stressed the need to closely watch the upcoming tankan and other indicators to gauge the strength of the economy.

Many Japanese firms want the authorities to go ahead with the planned tax hike, a Reuters monthly poll showed, in a sign companies stand ready for the higher levy.

Akio Mimura, head of the Japan Chamber of Commerce and Industry, said Hagiuda's remark was "unbelievable".

"I think it's wrong to fret about a little short-term fluctuation in the economy," he told reporters.

The previous tax increase to 8 percent from 5 percent in April 2014 hit consumers hard and triggered a sharp slump in the world's third-largest economy.

Since then Abe has delayed the planned hike twice as he prioritised economic growth over fiscal reforms.

Japan's economy remains fragile, with weak exports and factory output raising the spectre that GDP data due in May may show a mild contraction in the first quarter.

Weakening of the economy has pushed manufacturers' business confidence to a 2-1/2-year low in April, a Reuters poll showed, raising worry about strength of business investment and pointing to further deterioration in the BOJ's upcoming tankan.

To safeguard the fragile economy, the government has already planned to spend 2 trillion yen ($17.9 billion) on measures to offset the blow to consumers from a 10 percent sales tax.

The Organisation for Economic Cooperation and Development (OECD) urged Japan on Monday to raise the sales tax to as high as 26 percent, underscoring the need for the country to boost finances as its population rapidly ages.


TRADE NEGOTIATIONS

On trade talks with the United States, Aso said Washington "always demands a currency provision" against exchange rate manipulation should be included, suggesting the issue could be brought up in bilateral negotiations that began this week. But that would not affect Japan's monetary policy, he added.

Aso said nothing has been decided on his visit to Washington, which a government source said was scheduled on April 25, for talks with U.S. Treasury Secretary Steven Mnuchin.

Despite frequent U.S. criticism that a weak yen could help boost Japan's exports, Aso said there was "no correlation" between exchange rates and trade balance, and that he shares the common view on that point with Mnuchin.

($1 = 111.9400 yen)


(Editing by Chris Gallagher and Jacqueline Wong)