At next week’s BOJ meeting (Wednesday and Thursday) its thought that BOJ officials may spend some time speaking to government representatives (who attend BOJ meetings) about moving forward with the sales tax hikes on schedule.

Such discussions wont come up in the formal announcement made at the end of the meeting in Thursday, but will be included in the minutes to be published on September 10, which is around the time the final decision on the scheduling of the rises will be made.

  • Japan’s sales tax is due to rise to 8% from 5% in April, 2014
  • The debate within the government centres on concerns that the last time an extra sales tax was imposed, consumer spending suffered and hence the economy. But not imposing the tax to gain extra revenue risks further ballooning of Japanese government debt. Its a a tough dilemma for the administration and debate is ongoing.

More here.

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Added – Here’s a great piece of background from the Economist: Taxonomics

  • Financial markets have counted on the tax rise going ahead despite a change of government since then.
  • This week the authorities surprised them by saying they would set up a panel to examine whether to proceed as planned.
  • The plan is to lift the levy from 5% to 8% next April and to 10% in 2015.
  • The fear is that a rise in revenues from the tax could be far outweighed by years of lost growth if consumers take fright.

An alternative could be to lift the tax more gradually. Koichi Hamada, an economist at Yale University who helped to design Abenomics, has said that the levy could be raised in increments of 1% over five years. Mr Abe’s panel will study this option, among others