REPORT: Japan looks set to delay its sales tax increase again

Japanese Prime Minister Shinzo Abe. Photo: Kim Hong-Ji-Pool/ Getty Images.

With inflation non-existent and economic growth weak, Japanese prime minister Shinzo Abe will reportedly delay an increase to the nation’s sales tax from 8% to 10%, originally scheduled to occur in April 2017.

According to Reuters, citing government sources familiar with the development, Abe will delay the increase due concern the move could tip the economy back into deflation.

Abe is likely to delay the tax hike by one to three years, three sources with direct knowledge of the matter told Reuters.

The premier will meet with Finance Minister Taro Aso on Sunday, and Natsuo Yamaguchi, head of coalition partner Komeito, on Monday, to decide how long to delay the tax hike, says Reuters.

In April 2014 the government increased Japan’s sales tax from 5% to 8%, stipulating at the time that it would increase to 10% by October 2015, a decision it subsequently delayed to April 2017.

Previously Abe has pledged to raise the sales tax unless there was a financial crisis similar to the Lehman collapse or a major natural disaster.

Reuters, citing the Yomiuri newspaper, reports that the postponement by two years would still allow Japan to meet its target of turning the country’s budget deficit into a surplus by fiscal 2020.

Japanese stocks have risen on the news while the Japanese yen has weakened modestly against the US dollar.

As yet there has been no commentary forthcoming from any of the three major ratings agencies.

In April ratings agency Fitch projected Japanese gross government debt would reach 245% of GDP by the end of 2016, forecasting that the government’s general budget deficit would stand at 4.8% of GDP.

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