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Politics

Japan's Abe lays out conditions for sales tax hike

Statements aimed at blunting Koike's calls for a freeze

| Japan

TOKYO -- Facing pressure from Tokyo Gov. Yuriko Koike, the Japanese government is promising to look at economic indicators before deciding on raising the consumption tax, leaving open the possibility of postponing the increase yet again.

The government will review employment, currency exchange rates and other indicators before it makes a final decision on whether the 8% tax should be raised to 10% in October 2019 as planned, Chief Cabinet Secretary Yoshihide Suga told reporters Friday.

As examples of extreme situations that would lead to the third delay, Suga cited the dollar trading at 75 yen or the ratio of job openings to seekers falling to 0.83, just as they did before Abe returned to office in 2012.

"Raising the tax in those conditions would literally take the bottom out of this nation's economy," Suga said.

Prime Minister Shinzo Abe dissolved the lower house last month for a snap election on Oct. 22 in hopes of consolidating his mandate. The prime minister and his Liberal Democratic Party have been preparing to campaign on a set of social programs to be funded by the increased revenues from the higher tax.

But Koike upended that plan by forming the Kibo no To, or Party of Hope, and calling for freezing the consumption tax hike. With the right-of-center LDP and Party of Hope differing very little in terms of policy, the election will likely hinge on the tax issue.

Abe maintains that he will delay raising the tax if economic trends sharply worsen. "Of course, the economy is a living creature, and we will respond if we encounter an event like the Lehman shock," he said in a television appearance Thursday, referring to the 2008 economic crisis.

Suga elaborated further in Friday's news conference. "We will advance economic policies that promote a virtuous cycle and create conditions in which the bottom does not fall out of the economy even after a 2019 tax increase," he said.

The Party of Hope, the left-leaning Constitutional Democratic Party, and others in the opposition have called for postponing or freezing the hike, prompting Abe and Suga to mention the possibility of another delay. Some in the ruling coalition have expressed concerns that the opposition will inspire voters to express their displeasure with the increase at the ballot box. Campaigning officially kicks off Tuesday.

But Abe has said that he will not be able to offer free early childhood education and other social programs without raising the tax. When dissolving the lower house, the prime minister said he was putting the question of redirecting consumption tax receipts to the public.

Simply backing down from the tax hike out of political calculation would risk hurting Abe's credibility. Laying out conditions to justify delaying it would resolve his political dilemma.

Notably, Abe once said he would "certainly" raise the consumption tax absent a situation as critical as the economic crisis. Yet the prime minister postponed the hike anyway in June 2016.

Conditions "are completely different from financial instability akin to the Lehman shock, but this is to avoid falling into a crisis," he said at the time. Some wonder whether Abe will employ the "Lehman shock" yardstick this time around.

(Nikkei)

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