(Updates with quotes, background)
By Natsuko Waki and William James
LONDON May 1 Japan's consumer spending has not
slowed as much as feared after a consumption tax hike in April,
but such a risk warranted caution, Prime Minister Shinzo Abe
said on Thursday.
Speaking to business leaders in London, Abe also said wages
and employment must improve visibly to overcome deflation.
"While of course we still need to exercise caution regarding
the risk of Japan's increased consumption tax rate dampening
consumption, people are taking an optimistic view that
consumption has not been diminished to the extent we had
feared," he said.
"To overcome deflation, it is absolutely necessary for wages
and employment to move in a visible way in a positive
Abe, who has begun to reverse years of sub-par growth with
expansionary fiscal and monetary policies, has also said his
measures are leading the world's third-largest economy out of
Since coming back into office in 2012, Shinzo Abe has
engineered the economic recovery with aggressive monetary and
fiscal stimulus, known as Abenomics.
Earlier this week, the Bank of Japan projected for the first
time that inflation will exceed 2 percent roughly two years from
now, underscoring its conviction that a sustained end to
deflation is on the horizon without additional stimulus.
Repeatedly stating that Abenomics is moving forward, Abe
said he was determined to push through labour market reforms in
order to grow the economy despite a declining population.
"In order to grow, we must raise productivity ... We need to
reform labour regulation in order to make working conditions
more flexible," Abe said, in an answer to a question by Bank of
England Deputy Governor Andrew Bailey.
"Over the past year we've realised how difficult it has been
to do so. But we cannot grow without labour reforms. We are
determined to make that happen."
Abe's 10-day visit to Europe will also take in Portugal,
Spain, France and Brussels, institutions such as NATO and the
Organisation for Economic Cooperation and Development (OECD),
and meetings with European business leaders.
(Reporting by Natsuko Waki and William James; Editing by Ken