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Politics

Abe seeks more stimulus to keep economy humming beyond Olympics

Consumption tax increase planned for 2019 looms as stumbling block

The Council on Economic and Fiscal Policy met at the prime minister's office in Tokyo on Tuesday.

TOKYO -- Japanese Prime Minister Shinzo Abe is preparing another shot of economic stimulus to ensure that the country can weather the shock of an upcoming sales tax hike and remain on a growth path past the 2020 Olympics.

"Experts have told me we must overcome a shift in demand from the consumption tax hike and the Tokyo Olympics and put the economy on a stable growth trajectory," he said Tuesday at a meeting of the Council on Economic and Fiscal Policy.

"The government must come together to draw on our experiences from the 2014 hike and plan specific measures to even out demand trends," the prime minister said. Consumer spending plunged when the government raised the consumption tax from 5% to 8% in 2014 -- a scenario it hopes to avoid after the planned further hike to 10% in October 2019.

Abe also called for an outline on visa program reforms by the summer to bring in more foreign workers in fields facing chronic labor shortages, even with the increase in working women and seniors.

"There is a serious labor shortage, particularly among smaller businesses," he said. "We can accept foreigners with specialist and technical abilities."

Abe hopes to include new measures in the government's basic economic and fiscal policy to be finalized in June.

Private-sector members at the Tuesday meeting called for post-tax-hike steps to support demand for housing and durable consumer goods, like appliances, with an eye toward bolstering supply capacity, improving corporate competitiveness and solving social issues.

Tokyo introduced tax cuts and subsidies for environmentally friendly cars following the 2008 global financial crisis. It is considering similar incentives in other cutting-edge fields.

Much of the fiscal stimulus after the Olympics will come in infrastructure. "We need to take on investment projects that would serve as the foundation for growth after the Tokyo games," one expert said. Proposals include improving tourism infrastructure to bring in more inbound traffic.

On Friday, Abe nominated Bank of Japan Gov. Haruhiko Kuroda to serve another term, and reflationist Waseda University professor Masazumi Wakatabe as a deputy governor. Given that the ruling coalition controls both houses of the Diet, his picks are sure to be approved.

Abe's economic policy has leaned heavily on quantitative and qualitative easing by the BOJ and active government spending. The economy began turning up in December 2012, and is now in its second-longest recovery since World War II.

But it is unclear how Japan will fare after the consumption tax hike in 2019 and the Olympics the following year. According to forecasts from 16 think tanks compiled by Nikkei Inc., real gross domestic product is expected to drop an annualized 2.6% on the quarter in the October-December period next year, immediately after the planned tax hike. Japan could also get less of a boost than hoped from overseas if the U.S. Federal Reserve rushes to raise interest rates.

The economic bump from the Tokyo Olympics, such as in construction and tourism, will peak in 2018, according to the BOJ. The Daiwa Institute of Research sees real GDP growth slowing to just 0.4% in fiscal 2020 following the tax hike and a drop in demand following the games.

Abe has publicly reaffirmed that he will raise the consumption tax as planned in October 2019. At a Diet meeting on Feb. 5, he stressed that he wanted to secure a permanent revenue source to invest in the future of Japan's children. But first, he is likely to push for a large-scale supplementary budget in fiscal 2018 to shore up the economy.

At the same time, Abe's calls for economic stimulus smack of pre-election pandering. Nationwide local elections, held every four years, and the upper house election, held every three, are both happening in 2019. Abe could remain in office for up to three and a half more years, and wants to avoid an election loss that could turn him into a lame duck for the rest of his term.

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