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06-27-2012, 01:59 PM #11
"Japanese tax hike: pro et contra "(2012-06-27)
Japanese tax hike: pro et contra
Japan's lower house has voted to approve doubling the country's consumption tax to 10% over three years. The legislation now goes to the opposition-dominated upper chamber, where it is expected to pass during the current session of parliament ending September. However, the decision was not unanimous: 363 lawmakers voted in favor, while 96 - against.
Prime Minister Yoshihiko Noda championed the controversial bill regardless of the objections from his own party. In his view, the tax hike is needed to reduce the snowballing budget deficit (forecasted to reach 214% of GDP in 2012). Japan’s government says that the increase will generate $170 billion a year for the budget. Opponents believe the hike is premature and will weaken the economy further because it will limit the consumption.
Analysts at UBS fear that the first tax hike in 2014 could bring the economic recovery after the last year’s earthquake and tsunami to the deadlock. According to the Cabinet Office’s Economic and Social Research Institute, a 1% point increase in the tax will cut GDP growth by 0.32% a year after. In this case a strong economic stimulus will be required to support the rebounding economy.
In a short-term, the international investors take the “wait-and-see” approach, because they have already burned many times by trying to trade USD/JPY on Japan’s political events. Specialists at Sumitomo Mitsui Banking Corporation also don’t expect the Japan’s fiscal policy and the internal political differences to be the core factors to specify the yen's direction.
Yoshihiko Noda, Prime Minister of Japan, a member of the Democratic Party of Japan
Photo: Franck Robichon/EPA
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