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Pasla: Japan to grow despite tax hike
06 March 2014
Nomura’s chief economist is positive that the economy will overcome the hurdle of the consumption tax rate hike. Stephanie Baxter reports from Tokyo
Japan’s economy will continue to grow despite
challenges presented by an increase in consumption tax,
according to Tomoaki Kinoshita, chief economist, Nomura,
The Japanese government is set to raise the tax rate from 5%
to 8% in April this year.
"The biggest challenge for the Japanese economy this year is
the consumption tax rate hike," said Kinoshita.
He pointed out that the negative impact on the economy in
1997 was less down to raising consumption tax than to an
internal financial crisis when financial companies failed and
also external factors such as the Asian financial crisis.
"This time is very different. The economy is likely to expand
rather than shrink and the government has very good stimulus
package to mitigate the negative impact of a tax hike."
There are concerns in Japan that the increase will deter
consumers and therefore negatively impact corporations.
But Kinoshita said that following his recent conversations
with corporation executives, they are "not really worried
"This is a good sign and corporate activity should be ok."
However, there is concern that the government could raise
consumption tax again in October 2015, this time to 10%.
Prime Minister Shinzo Abe is expected to make a decision by
the end of this year.
"If Q3 GDP is negative, that is not very good for the economy
and Abe will probably abandon the idea of raising tax again,
which would mean that reduction in corporate tax is unlikely.
Unless consumption tax is raised again, it’s
very difficult for the government to enact the corporate tax
Kinoshita was speaking at the annual Pasla/RMA Conference on
Asian Securities Lending in Tokyo on March 5.