Earthquake in Japan: PM Shinzo Abe sticks to script on sales tax plans after deadly quakes

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Updated: April 18, 2016 5:04 PM

Tokyo is sticking with plans to raise the sales tax next year, barring a financial crisis or a major natural disaster, Prime Minister Shinzo Abe said on Monday, without saying whether two deadly quakes in southern Japan qualified as such as disaster.

Tokyo is sticking with plans to raise the sales tax next year, barring a financial crisis or a major natural disaster, Prime Minister Shinzo Abe said on Monday, without saying whether two deadly quakes in southern Japan qualified as such as disaster.

The tremors on the southern island of Kyushu on Thursday and Saturday have caused at least 42 deaths and disrupted production at major manufacturers including Toyota Motor Corp and Sony Corp.

“Regarding the sales tax, as I have previously said, there is no change in our basic stance that unless there is a situation comparable to the Lehman shock or a major disaster, the sales take will be raised as planned,” Abe told parliament.

With consumption weak, wage growth limp and a stronger yen  clouding Japan’s growth, economists were already betting Abe would delay a rise in the tax to 10 percent from 8 percent. Due from April 2017, the hike is seen by fiscal hawks as needed to curb bulging public debt and pay for huge social security costs.

However, how Abe would explain any decision to put off the increase, already delayed once, is another matter.

Private economists said the Kyushu quakes could give Abe an added reason to delay the increase in the levy.

“The negative impact on consumer and business psychology means it makes a little more sense to postpone the consumption tax (rise),” said Robert Feldman at Morgan Stanley MUFG Research, Japan. “It is another reason not to raise the tax.”

Economists forecast the quake impact could slice 1 percentage point off industrial output in April and hurt foreign tourism, recently a big plus for consumption.

However, damages were expected to fall short of that from the 2011 disasters that devastated parts of northeast Japan and triggered meltdowns at the Fukushima nuclear plant.

Abe is expected to announce a decision on the tax hike around the time of a May 26-27 Group of Seven summit that he will host.

The U.S. Geological Survey estimated there was a 72 percent likelihood of economic damage exceeding $10 billion.

($1 = 108.0000 yen)

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