Japan’s government is ready to provide extra spending if a sales-tax increase next year damps economic growth, a senior finance ministry official said.
“We must take appropriate action to counter” any decline in economic growth after the tax increase planned for April, Yuzuru Takeuchi, 54, parliamentary secretary for finance and a lower house legislator, said in an interview today in Tokyo. The government will also create a panel to encourage companies to raise wages, he said.
Prime Minister Shinzo Abe is rolling out fiscal and monetary stimulus to help pull the economy out of a more than decade-long deflationary malaise. The government is grappling with supporting growth while trying to slow the increase in Japan’s debt burden, the developed world’s largest.
“If the government doesn’t announce a further fiscal package, we’re likely to see some payback” in growth from the boost in 2013 from government spending, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo.
The economy may shrink an annualized 3.9 percent in the second quarter of 2014 after the sales tax is raised to 8 percent from its current 5 percent, according to the median forecast of economists surveyed by Bloomberg News. The tax will be further increased to 10 percent in 2015.
Asian shares headed for the biggest loss since March 2011 today on concern that the U.S. Federal Reserve may phase out stimulus and as a cash crunch in China worsened, highlighting global risks that could weigh on Japan’s expansion. The MSCI Asia Pacific Index of regional shares lost 4.2 percent by 9:46 a.m. in London as Japan’s Topix fell 1.3 percent. The yen was 1.8 percent lower at 98.15 per dollar.
Tax revenues for the current fiscal year will probably exceed an initial estimate and the government can tap that resource for spending, said Takeuchi, a lawmaker in the ruling coalition’s New Komeito party.
One ruling-party lawmaker who has advised Abe on monetary policy said earlier this month that some budget steps ought to be taken to reduce the impact of the sales-tax boost.
“We must consider fiscal measures in next year’s budget to alleviate its harmful effects,” Kozo Yamamoto, a Liberal Democratic Party politician who Abe has said has been an influence on his economic thinking, said in a June 7 interview. “That could be a handout to low income people.”
The government plans to create a panel to take charge of wage negotiations to encourage companies to raise pay as the central bank seeks to achieve 2 percent inflation, Takeuchi said. Traditionally, Japan’s wage negotiations are conducted in spring each year between firms and labor unions.
“Price increases without higher wages will just inflict pain on the Japanese people and won’t lead to an end to deflation in a real sense,” he said. Raising wages is “crucial” to cause a positive economic cycle in which prices and workers’ incomes increase together and lead to more consumption and capital investment.
Japanese wages were unchanged in April after falling for the previous two months.
Abe met in February with Japanese business leaders and urged them to increase wages and help end deflation. Separately, Finance Minister Taro Aso and ministry officials met leading members of the Keidanren, the country’s biggest business lobby, in March and called for wage increases. Takeuchi attended this meeting.
Aso has “strongly advised” the prime minister of the need to encourage firms to pay higher wages, Takeuchi said, and Japanese firms should start using their accumulated cash to do so, he added.
Private companies held cash and deposits worth 225 trillion yen ($2.3 trillion), an amount in excess of the size of Italy’s economy or the liquid assets held by American firms, Bank of Japan data showed yesterday.
To contact the reporters on this story: Mayumi Otsuma in Tokyo at email@example.com; Kyoko Shimodoi in Tokyo at firstname.lastname@example.org
To contact the editor responsible for this story: Paul Panckhurst at email@example.com