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Economy

Abe vows 'all measures' to shield economy from consumption tax hike

Japanese PM sticks to October 2019 implementation schedule

Japanese Prime Minister Shinzo Abe announced Monday that his government would stick to its October 2019 schedule for raising the consumption tax rate to 10% from 8%. (Photo by Uichiro Kasai)

TOKYO -- Japanese Prime Minister Shinzo Abe on Monday confirmed his government would raise the consumption tax rate to 10% from 8% as scheduled in October 2019, and instructed his cabinet to "mobilize all measures" to mitigate any damage to the economy. 

Abe laid out his instructions at an extraordinary cabinet meeting during the afternoon.

Policies to stem the impact on the public will include purchase reward schemes at medium-sized and small retailers, and easing the burden of buying and owning durable goods like homes and cars. Other measures include keeping the tax rate at 8% on food and drink, except for on alcohol and at restaurants. 

At a news conference after the meeting, Chief Cabinet Secretary Yoshihide Suga said the instructions were made in light of lessons learned from the previous hike in 2014, when the rate was raised to 8% from 5%. The move caused a "reactionary fall" in demand that "lasted for a long time," Suga said. 

With Japan's population aging and declining, the Abe government plans to use the additional tax revenue for measures aimed at helping households, such as making early childhood education free.

The rate hike has been delayed twice amid concerns over the impact on the economy. Macroeconomic indicators show demand remains sluggish. Unable to achieve its 2% inflation target, the Bank of Japan has maintained a policy of negative interest rates, in contrast to the U.S. Federal Reserve’s tightening. 

Earlier in October, the International Monetary Fund warned that the impact of the tax hike would "carry past 2019 and adversely affect consumption and overall growth in 2020." 

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