Japan seen hiking sales tax next year but trade spat or slump could delay
TOKYO (Reuters) - Japan’s government is expected to go ahead with a long-planned sales tax hike next year, a Reuters poll found on Tuesday, although it may be postponed again if the yen spikes or trade disputes rattle the economy.
Two-thirds of economists Reuters polled said there was at least an 80 percent chance Japan would raise the sales tax to raise the revenues it needs to cover growing social security payments for an aging population.
The government has twice postponed raising the tax to 10 percent for fear of triggering a recession, which is what happened after when the sales tax was lifted to 8 percent from 5 percent in 2014.
All but two of the 36 economists polled over July 3-13 said there was a greater than a 50 percent chance Prime Minister Shinzo Abe’s government will press ahead with the hike in October 2019.
Four respondents said a hike at that time was “almost 100 percent certain”, while 21 put the likelihood at around 80 percent. Six picked “about 70 percent” and three opted for “about 60 percent”.
Asked under what circumstances the government would postpone the tax hike, 12 economists said “if the yen strengthens or share prices tumble,” six chose “if trade disputes worsen,” and five each selected “if the economy contracts again” and “if consumer spending deteriorates”. Eight economists picked other factors.
In the event of a global slowdown, said Masaaki Kanno, chief economist at Sony Financial Holdings, “the government is likely to delay the sales tax hike”.
SLOW GROWTH SEEN
Japan’s economy, which contracted in the first quarter, is seen growing 1.1 percent for the fiscal year through March 2019 and then slowing to 0.8 percent the following fiscal year, the poll found.
“There is a high chance that global trade will be subdued due to China’s economic slowdown, impacts from trade friction and waning US tax cut benefits. It is hard to see the pace of Japan’s economic growth accelerating only on domestic demand,” said Harumi Taguchi, principal economist at IHS Markit.
Most economists polled said the Bank of Japan would keep its current ultra-loose monetary policy because consumer inflation was still subdued.
The core consumer price index, which excludes fresh foods, is seen rising 0.9 percent this fiscal year, and 1.0 percent the following year - excluding effects from the scheduled sales tax hike.
Thirteen of the 35 economists in the poll predicted the BOJ would not start unwinding its stimulus measures until 2020 or later.
Twelve believed the central bank could begin scaling back stimulus in the first half of next year and eight opted for second-half 2019. Only two said the BOJ would begin unwinding stimulus this year.
The BOJ is scheduled to hold a regular policy meeting over July 30-31. Sourced have told Reuters that the central bank may concede at the meeting that inflation could fall short of its 2 percent target for up to three more years, in what would be the strongest sign yet of acceptance that its goal cannot be reached quickly.
Four respondents said a hike at that time was “almost 100 percent certain”, while 21 put the likelihood at around 80 percent. Six picked “about 70 percent” and three opted for “about 60 percent”.
Asked under what circumstances the government would postpone the tax hike, 12 economists said “if the yen strengthens or share prices tumble,” six chose “if trade disputes worsen,” and five each selected “if the economy contracts again” and “if consumer spending deteriorates”. Eight economists picked other factors.
In the event of a global slowdown, said Masaaki Kanno, chief economist at Sony Financial Holdings, “the government is likely to delay the sales tax hike”.
SLOW GROWTH SEEN
Japan’s economy, which contracted in the first quarter, is seen growing 1.1 percent for the fiscal year through March 2019 and then slowing to 0.8 percent the following fiscal year, the poll found.
“There is a high chance that global trade will be subdued due to China’s economic slowdown, impacts from trade friction and waning US tax cut benefits. It is hard to see the pace of Japan’s economic growth accelerating only on domestic demand,” said Harumi Taguchi, principal economist at IHS Markit.
Most economists polled said the Bank of Japan would keep its current ultra-loose monetary policy because consumer inflation was still subdued.
The core consumer price index, which excludes fresh foods, is seen rising 0.9 percent this fiscal year, and 1.0 percent the following year - excluding effects from the scheduled sales tax hike.
Thirteen of the 35 economists in the poll predicted the BOJ would not start unwinding its stimulus measures until 2020 or later.
Twelve believed the central bank could begin scaling back stimulus in the first half of next year and eight opted for second-half 2019. Only two said the BOJ would begin unwinding stimulus this year.
The BOJ is scheduled to hold a regular policy meeting over July 30-31. Sourced have told Reuters that the central bank may concede at the meeting that inflation could fall short of its 2 percent target for up to three more years, in what would be the strongest sign yet of acceptance that its goal cannot be reached quickly.
