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Politics

Japan's strong GDP strengthens likelihood of October tax hike

Key players express support, quelling arguments for postponement

Japan's consumption tax rate is slated to increase to 10% from 8% in October.   © Reuters

TOKYO -- Leading figures within Japan's government and ruling coalition endorsed raising the consumption tax rate to 10% as planned in October after unexpected news on Monday that the country's gross domestic product grew 2.1% in the first quarter.

Japan's January-March real GDP, released by the Cabinet Office, beat forecasts of a slight contraction. When asked how this could affect the tax hike, Chief Cabinet Secretary Yoshihide Suga said "there will be no impact at all."

"We should increase the tax as planned, and work on measures like reducing education costs," said Natsuo Yamaguchi, chief representative of junior ruling coalition member Komeito.

There had been talk of tying the timing of the tax hike to economic performance since April, when Koichi Hagiuda, chief deputy secretary-general of the ruling Liberal Democratic Party and a special adviser to Prime Minister Shinzo Abe, hinted at the possibility of a postponement. But Suga and other top officials immediately dismissed the idea, and Monday's announcement only weakened the likelihood of a delay.

Instead, the government and the ruling coalition are looking into additional stimulus measures to shore up the economy ahead of the hike. Many believe a delay now, less than six months out, would only cause confusion.

'We need to keep a close eye on the impact of the U.S.-China trade war," Yamaguchi said.

An LDP official said: "We could even implement those measures right now."

The government typically drafts a supplementary budget in the fall or winter under the prime minister's orders. But it could announce one before this summer's upper house election, which would make it easier for the LDP to secure funding targeting interest groups. It could also help win votes in the Tohoku region, which has many single-seat districts, as demand for public projects grow now that reconstruction efforts for the 2011 earthquake and tsunami are winding down.

"There are some uncertainties in the global economy, due to the U.S.-China trade war and other factors," Abe told LDP officials at a Monday meeting. "But we will continue to watch economic trends closely, and conduct policy with the economy as a top priority."

His comments suggest a slowdown in exports and industrial production could lead to stimulus in the future. But amid speculation that Abe could dissolve the lower house for a snap election to coincide with the upper house race, many believe the decision of the tax hike ultimately depends on the prime minister's political agenda.

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