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Tax Hike Delay May Lift Japan Growth

Tax Hike Delay May Lift Japan GrowthTax Hike Delay May Lift Japan Growth

The postponement of Japan’s consumption tax increase that was announced by Prime Minister Shinzo Abe earlier this week is expected to push up the country’s economic growth rate by slightly less than 1 percentage point in fiscal 2017, according to five private-sector think tanks.

Their estimates for the country’s real gross domestic product in the year starting next April now range from an increase of 0.7% to a 1% rise, Jiji Press reported.

Their previous forecasts, which were based on the assumption that the consumption tax would be raised in April 2017 as previously scheduled, ranged from a 0.2% contraction to a rise of 0.3%.

The Daiwa Institute of Research and the Mitsubishi Research Institute, which previously projected negative growth, now think Abe’s decision will help avoid increasing tax burdens on households and cause negative effects from rush demand before the tax hike.

By contrast, the five think tanks, which also include the Mizuho Research Institute, Meiji Yasuda Life Insurance Co. and SMBC Nikko Securities Inc., lowered their fiscal 2016 GDP forecasts, saying rush demand is not expected without the tax increase.

On Wednesday, Abe announced his decision to put off the tax increase by 2½ years until October 2019 in order to deal with downside risks to the global economy.

He also unveiled a plan to draw up a comprehensive economic stimulus package in autumn to be financed by a second supplementary budget for fiscal 2016.

Full-fledged effects from the extra budget are unlikely to emerge until fiscal 2017 as it needs to be approved by the Diet during an extraordinary session in autumn.

 

Financialtribune.com