Hesitation on Posing Burden

It seems to be hard for the leaders of Japan to refrain from borrowing money of their kids and grandchildren. Although commercial price index in July escaped from decline, by 0.4%, for the first time in these fourteen months, the Prime Minister, Shinzo Abe, is reluctant to raise the rate of consumption tax next April. He requested his staff to review the impact of raising tax rate on economy and commodity price. It could be aimed not to harm positive tendency of economic revival, however, both the Liberal Democratic Party and Democratic Party of Japan has been saying that delaying the tax hike might be just a spending time, only vesting burden on our kids. Abenomics began to show its uncertainty.

Nikkei Shimbun on Saturday reported that Abe had four options on consumption tax hike. One was to raise the rate from 5% to 8% next April, and then to 10% in October 2015, as both parties had agreed on last year. The second was four-step option that was with 2% rise for the first step and three rises of 1% each for the rest. The third option was 1% hike of every year in next half decade. He also considers zero option of consumption tax hike as the fourth option.

This review may bring great risks. Even how Abe is serious about getting rid of long-time deflation, current administration has no alternative for improving financial structure of the nation other than increasing income with consumption tax hike. Including Abe himself, former prime ministers have been worsening national budget with huge accumulation of nation debt, which has already been amounted to $10 trillion. Although DPJ administration tried to reduce the debt with cutting governmental spendings, Abe has been accumulating it with great deals in infrastructure projects.

After Japan was named in the joint statement of G20 meeting in April as necessary to have a credible mid-term financial plan, Japan’s Minister of Finance, Taro Aso, announced that the government was going to make mid-term financial plan in the middle of this year. That became an international promise of Japan. But, the Abe Cabinet considers postponing the decision of the plan until it determines how to raise the consumption tax rate in this fall.

The most important thing is how international market will assess this delay of action. If it expects that Abe’s handlings on Japan’s economy will encourage further growth, stock market can be stable as it has been after Abe administration started. But if it sees the negative sign on further accumulation of national debt, long-term debt rate will be raised, triggering a breakdown of Japanese economy in the same course we have seen in Greece, Spain or Italy.