Abe expected to announce tax hike and new stimulus for Japan

SHINZO Abe, Prime Minister of Japan, is set to announce a hike to the country’s sales tax today, paired with measures designed to offset negative effects on demand.

Japan’s consumption tax is primed to rise from five per cent now to eight per cent in April. Though there has been opposition, Abe is backed by Bank of Japan governor Haruhiko Kuroda.

The hike is designed to broaden Japan’s tax base, combating years of government overspending.

However, increasing the sales tax raises painful memories: in 1997, the levy rose from three to five per cent. The introduction was poorly timed, coming alongside the Asian financial crisis, making proposals to raise the tax politically difficult.

Japan’s industrial output for August, announced yesterday, saw a dip of 0.7 per cent, after a strong July. Many indicators currently suggest an improved situation for Japan’s economy, with Kevin Gaynor of Nomura commenting: “We are confident that this is a trend that is not going to end in the short term but will be with us for several months.”