TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe vowed to proceed with next year’s scheduled sales tax hike “by all means” and take steps to ease an expected hit to consumption from the higher levy, the Nikkei newspaper reported on Tuesday.
Abe said his ruling Liberal Democratic Party (LDP) won last year’s lower house election with a pledge to use proceeds from the sales tax increase to make Japan’s social welfare system more sustainable.
“We must accomplish this by all means,” Abe said in an interview with the economic daily, referring to his plan to raise the tax to 10 percent from 8 percent in October next year.
Abe twice postponed the tax hike after an increase to 8 percent from 5 percent in 2014 tipped Japan into recession.
Some analysts warn next year’s scheduled tax hike could hurt already fragile private consumption, at a time that a construction boom leading up to the 2020 Tokyo Olympic Games may peter out.
Abe said the impact of the tax hike to 10 percent will be smaller than that of the increase to 8 percent. He also said the government will take measures to moderate an expected downturn in consumption after the hike.
Commenting on whether the government could declare an end to deflation even before inflation hits the Bank of Japan’s 2 percent target, Abe said the key to the decision would be job growth.
“Japan may not have achieved the (BOJ’s) inflation target, but what we are really focused on is employment,” he said.
Japan’s economy is on track to mark its longest postwar expansionary period thanks to robust exports and capital expenditure. The jobless rate has also slid to record-low levels that analysts say are near full employment.
But inflation remains distant from the BOJ’s price target as companies remain wary of raising prices for fear of scaring away cost-sensitive consumers.
Reporting by Leika Kihara; Editing by Shri Navaratnam