Stimulus boost aims to balance Japan tax hike

MINISTERS in Japanese Prime Minister Shinzo Abe’s government approved a burst of new stimulus yesterday, launching a package which will run to ¥18.6 trillion (£111.26bn)

Most of the deal is made up of spending that is already scheduled, but it includes ¥5.5 trillion of new spending that was announced at the beginning of October to offset Japan’s looming sales tax hike. Japan’s consumption tax will be hiked from its current five per cent to eight per cent in April, and to 10 per cent from October 2015.

The memory of a similar 1997 hike in the sales tax, which was blamed for stalling the country’s economic recovery, still haunts the Japanese political debate.

Bank of Japan governor Haruhiko Kuroda also spoke out yesterday, promising the continuation of the country’s quantitative easing programme until two per cent inflation is reliably sustained.

Hermes Fund Managers’ chief economist, Neil Williams, suggested recently that the year ahead could be particularly difficult for Abe and Kuroda’s growth strategies: “Japan’s higher inflation will now need to be matched by wages in the spring 2014 shunto (wage negotiations), to avoid a repeat of 2008 when an oil-inspired CPI rise hurt consumption. If it isn’t, ahead of a major tax rise, Abe’s progress may yet prove to be another false dawn.”