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
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.