A brief story in the Wall Street Journal neatly encapsulates the dilemma Japan is facing in the debate about the sales tax hime (the first leg of which is due in April 2014):
“It is extremely important to push ahead with fiscal reform while pursuing the goal of revitalizing the Japanese economy at the same time,” finance minister Taro Aso said in a speech delivered at a meeting of the ministry’s regional bureaus. “While making efforts to defeat long-running deflation, Japan needs to revamp its finances to make them sustainable on a long-term basis.”
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. A tough dilemma for the government.
Difficult to see how the yen doesn’t weaken further, IMO.
Japan Fin Min Aso: Important to Push Ahead With Fiscal Reform as Well as Econ Revitalization
(The Wall Street Journal is often gated, so if you’re unable to access the article try a search of Google news using the headline)
