This Week’s “Nagata-cho” (10-17.Sep, 2013)

 The Ministry of Finance and Cabinet Office on September 11 released

their prediction of the economic sentiment for the July-September

quarter, marking +12 for the serial three quarters as of August 15.

Also, the fiscal and economic policy minister Akira Amari reported on

September 13 that the economic condition is in the recovering phase to

the Cabinet meeting. Toward Prime Minister Shinzo Abe’s judgment

whether to raise the consumption tax rate from April 2014, the

economic indicators suggest that the economy has picked up as the

supplementary provision of the legislation premised as conditions for

the tax-hike. Accordingly, the lawmakers in the ruling Liberal

Democratic Party have increasingly voiced accepting the scheduled-tax

hike to 8% from the next year.

 Abe told Finance Minister Taro Aso and Amari to compile the economic

stimulus and supplementary budget including the second growth strategy

by the end of this month on September 10, and Tsuyoshi Noda, Chairman

of LDP’s Research Council on the Taxation System, to take

countermeasures to avoid negative impacts of the tax-hike to the

economy. Abe also showed his recognition to regard the 2020 Olympics

as the fourth arrow of the Abenomics and vowed to accelerate the

regulatory reforms to boost the country’s industrial competitiveness.

 According to Abe’s direction, the government entered discussions on

an economic stimulus of about 5 trillion yen to prevent negative

impacts of the scheduled tax hike. It will likely include corporate

tax reduction on investment, public works projects toward the 2020

Tokyo Olympics, regenerative medicine like iPS cells, etc. At the same

time, the LDP lawmakers started specific discussions on the second

growth strategy pillared on the taxation system promoting financial

investment and industrial reorganization on Sep 11. The LDP’s

Research Council on the Taxation System will draft specific

suggestions by the end of this month.

 But many have different ideas on an idea to reduce the corporate tax

rate (totally 35.64% both in the central and local governments, about

by 38% by 2014). While Amari and several advisors to Abe support the

idea to reduce the corporate tax, Finance Minister Aso and the MoF

showed a negative view. Within the ruling party, while the policy

chief Sanae Takaichi and Yasuhisa Shiozaki supports the idea on the

contrary to many Research Council members. The sharp confrontation

within the ruling party has been accelerated toward this year’s

taxation reform.

 Given the economic indicators considered to be serving as supporting

factors for a tax-hike, many view that Abe will raise the sales tax

rate as scheduled. Still, Abe and Chief Cabinet Secretary Suga

maintain the attitude that Abe will announce his decision on October 1

after examining the results of Bank of Japan’s business sentiment

survey. The background of such cautious attitudes by Abe and other

officials is the antipathy against the MoF which places the top

priority on a financial restructure rather than an economic recovery.

Abe seems to be seeking that the Cabinet will initiate the

budget-compiling process through containment policy toward the MoF.

 Meanwhile, Abe decided to reappoint all the LDP executive officers

including the Chairman of Diet Affairs Committee in order to manage

the next extraordinary Diet session in which the Cabinet plans to the

important bills regarding the growth strategy and national security,

power industry, social security, etc. Yet, there is only about a month

to discuss these Cabinet-proposed bills within the two month of the

Diet session. Although the ruling coalition dominates majority in both

Houses, it will likely be the key whether and how to obtain

cooperation from the opposition parties.

 On the other hand, the opposition parties will censure the government

for its slow response to the radioactive water leaks at the stricken

Fukushima no.1 nuclear complex. The ruling coalition plans to hold

hearings in the Diet while it is in recess on Sep 27 and 30, while the

opposition camp requests the hearings in an earlier timing. The

Cabinet will appeal its effort in the hearings.

 Toward Abe’s final judgment on the scheduled tax hike, the focal

point seems to have shifted to 5 trillion yen of the economic stimulus

to overcome possible negative impacts of the tax-hike. The political

bargaining among the Cabinet, the ruling and opposition parties will

likely be accelerated. The prospect of the economic stimulus requires

close attentions this week.