Tax Hike Ready

Office of Cabinet released revised gross domestic products between April and June this year on Monday. It marked 3.8% surplus of real GDP and 3.7% of nominal GDP as adjusted number to yearly indicator. The law for raising rate of consumption tax requires economic growth as a condition and its benchmark is 2% growth in real GDP and 3% in nominal. The result of the second quarter this year has fulfilled it. Although it is obvious for Japanese economy to be ready for the tax hike, Prime Minister, Shinzo Abe, is still worried, or pretending to be so, about situation of fundamental situation of economy.

When the office announced temporary result last month, it was 2.6% surplus of real GDP and 2.9% of nominal GDP. The statistics has been apparently improved in a month. Capital investment turned from decline in temporary report to growth, marking 1.3% of surplus, for the first time in last six quarters. Retail services and construction industries had contributed to it.

It must have positive impact on Abe’s decision for raising consumption tax rate from 5% to 8% next April, and to 10% in October of 2015. “It added a positive element,” told Akira Amari, Minister of Economy and Finance, “and it is important to enhance the resilience from temporary damage, when the tax rate is raised.” Indicating that Abe would announce his decision on it on October 1^st, Amari revealed his intention of releasing a package of economic stimulus as well.

Having said that, Abe is still careful of the impact on economy. The report of the Office of Cabinet also showed decline of individual consumptions, marking 0.1% of minus. Monthly stats on basic wage have consecutively been declining for over a year. While commodity price is going up as PM Abe intended, income of families has not sufficiently been grown.

Asahi Shimbun on Tuesday reported that Abe already decided that the condition for raising consumption tax was met. Considering growing requirement of lawmakers in his Liberal Democratic Party for active measures on stimulating economy, he will be picking up positive policies as much as possible. While the possibility of tax relief for more capital investment and additional subsidy for low-income families are discussed, main menu would be leaning on investing infrastructures as usual, adding more burden on national budget.

Some foreign media reported the invitation of Tokyo Olympic Games was the “fourth arrow” of Abenomics, most economists recognize that sports event as short-term stimulus for Japan economy, and require fundamental reform of economy and growth policies in long terms.