The scale of a potential economic stimulus package to cushion the expected impact of the sales tax hike in Japan looks to be around $50bn.
- Japan’s sales tax is expected to go from 5% to 8% in April 2014 (even though Japan’s chief cabinet secretary Suga said yesterday that no final decision had been reached)
- Extra government revenue is needed to pay for expanded borrowings
- The risk of imposing the extra tax is a fiscal drag and a fall in economic activity
- The extra stimulus is meant to ‘cushion’ any effect from the extra fiscal drag
- Abe has instructed his government to devise a stimulus package by the end of September. According to sources, one option is a spending package worth 5 trillion yen ($50.01 billion)
- There was talk already of a $50bn package, back in July
