Mon, Nov 03, 2014 page15

• Japan PM grapples with tax jinx after BOJ easing

  LOSING FAITH: Some economists have said Shinzo Abe’s popularity is declining as ‘Abenomics’ appears not to be having the desired effect of reviving the economy

  • Reuters, TOKYO
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  When Japanese Prime Minister Shinzo Abe raised Japan’s sales tax from April, he was betting he could break a jinx that has doomed leaders who raised the levy to losing their jobs.

  Now, wounded by Cabinet scandals and growing doubts about his radical “Abenomics” prescription to revive an economy scarred by years of deflation, Abe must decide whether to roll the dice again.

  A shock move on Friday by the Bank of Japan (BOJ) to expand its massive asset-buying stimulus program — in the hope it stokes inflation — could boost the chances of a rise in the unpopular levy from last month, especially if followed by promises of added fiscal stimulus to help offset the pain.

  However, concerns that his popularity has peaked and worries about the election calendar are certain to weigh as heavily as economic data when Abe decides in coming weeks whether to press ahead with a planned rise to 10 percent.

  “The government is indicating it is focusing on the economy ... but the truth is that after all, Abe will weigh political loss and gain in making a final decision,” SMBC Nikko Securities senior economist Hiroshi Watanabe said.

  Raising the sales tax requires a strong nerve and reserves of political capital — the issue has been regarded as the “third rail” of Japanese politics ever since it was first promoted in 1979, and a previous increase in 1997 was blamed by many for killing an incipient recovery.

  So for proponents of the hike, who argue it is vital to curb Japan’s huge public debt and fear delay would trigger a sell-off in government bonds and a spike in long-term interest rates, the timing for a decision is hardly auspicious.

  For 20 months after taking power with pledges to reboot Japan’s economy with a mix of hyper-easy monetary policy, spending and reform, Abe’s team was mostly unscathed by the scandals that dogged his first, troubled term from 2006 to 2007.

  However, since a September Cabinet reshuffle meant to boost his ratings, two ministers have quit over funding-related misdeeds, others face scrutiny and talk persists about fresh disclosures.

  To be sure, the scandals themselves have not sent Abe’s ratings plunging. Support remains about 50 percent, although some polls showed it falling to slightly below that for the first time since July, when Abe’s Cabinet took the controversial step of easing constitutional constraints on the military.

  However, the scandals coincide with growing concerns about Japan’s long-sought economic recovery after the 3 point rise in the sales tax to 8 percent in April pushed the economy into its deepest quarterly slump since the 2009 global financial crisis.

  “I don’t think the scandals are doing all that much damage,” said a ruling Liberal Democratic Party (LDP) lawmaker who declined to be identified so he could speak freely. “The problem is the economy.”

  Abe has already faced pressure from some aides, including architects of Abenomics, to delay the tax rise.

  Implicitly admitting that not all was going according to plan, the BOJ on Friday said it would accelerate its purchases of Japanese government bonds, even as the government signaled a willingness to boost fiscal spending if needed and the government pension fund announced it would buy more shares.

  The moves pushed Tokyo share prices, closely watched by Abe as a barometer of economic sentiment, up more than 5 percent. Although, how much the actions are set to impress voters, especially those in regions feeling neglected by Abenomics, is unclear.

  Despite the scandals and economic doubts, there is little talk that Abe’s grip on his own job is in immediate danger.

  The LDP trounced the main opposition Democratic Party of Japan in the 2012 election, and the opposition has been in disarray since. Strong rivals are scarce inside Abe’s own party.

  “As the economy slows, hopes for Abe are declining, but there is little sense among the public that Abe should be dumped because there is no viable alternative either inside or outside the LDP,” veteran political analyst Minoru Morita said.

  However, much of Abe’s voter support rests on hopes he can lead the world’s third-biggest economy back to sustainable growth, so signs that is not happening are likely to erode his ratings.

  “Abenomics is nearing its sell-by date,” LDP lawmaker Seiichiro Murakami said.
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