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Abe Ally Says Failure to Raise Sales Tax May Cause Japan Selloff

Photographer: Ko Sasaki/Bloomberg

A woman dressed in a kimono walks past a Harry Winston store in the Ginza area of Tokyo. Close

A woman dressed in a kimono walks past a Harry Winston store in the Ginza area of Tokyo.

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Photographer: Ko Sasaki/Bloomberg

A woman dressed in a kimono walks past a Harry Winston store in the Ginza area of Tokyo.

Failure to increase Japan’s sales tax as planned could lead overseas investors to unload their Japanese assets and “blow away” the market benefits of Abenomics, a lawmaker ally of Prime Minister Shinzo Abe said.

Kozo Yamamoto, a ruling Liberal Democratic Party tax panel member whose pro-monetary easing stance Abe has cited as an influence, said he urged the premier to go ahead with the scheduled increase to 8 percent from 5 percent next April. Raising the tax will not affect the battle to escape deflation, he said in an interview yesterday.

Abe will decide Oct. 1 whether to stick with the current plan, Economy Minister Akira Amari said yesterday. Koichi Hamada, a former Yale University professor who is now an Abe adviser, expressed concern on Sept. 4 about the tax increase’s potential effect on the economic recovery and said it should be postponed or made in smaller steps.

Abe is pushing to end 15 years of deflation and tepid growth in Japan through monetary easing and fiscal stimulus. As part of that effort, the Bank of Japan has committed to buying about 70 percent of planned bond issuances from the world’s most heavily indebted nation to try to achieve a 2 percent inflation rate within two years.

“The tax increase has nothing to do with deflation,” Yamamoto said. “Deflation is a monetary phenomenon. The Bank of Japan is dealing with this actively and it should continue to do so.”

Yamamoto called for an extra spending package of 4 to 5 trillion yen ($40.2 billion to $50.2 billion) to offset the tax increase, saying it could be funded without selling additional bonds by tapping rising tax revenue from the improving economy and using funds left over from the 2012 budget. Any economic shocks could be dealt with by central bank action, he said.

“Investors are asking whether Japan really has the will to rebuild its finances,” Yamamoto said. “If we don’t go ahead, it’s highly likely they will pull out of Japan.”

To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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