If history is a guide, a string of disappointing economic reports in Japan would seem to argue against raising the country's sales tax again. But the risks for "Abenomics" are increasing whatever Prime Minister Shinzo Abe decides to do.
A recovery in the world's third-biggest economy is faltering, despite Abe's massive monetary easing and government spending over the past 21 months, and Japan may already be sliding into recession just as Abe must decide whether to raise the tax once again.
The damage from an April tax hike has been worse than expected and worse than an increase in 1997, which began a tailspin that ended the career of the then prime minister.
At the same time, delaying the tax hike is looking riskier. Some economists, investors and business people say it could spook financial markets already worried about Japan's commitment to curbing its runaway government debt.
"If they don't go ahead with it, that will shake confidence in Japan's finances to some degree," said Takao Yasuda, chief executive of discount retailing giant Don Quijote Holdings.
"People would interpret it as evidence of just how weak the economy is," Yasuda told Reuters on Tuesday. "If you ask me, it would be better to raise it to 10 percent soon and get all the negative factors out there."
Economists generally expect Abe to decide by year-end to proceed with a longstanding plan to raise the tax to 10 percent next October. That would complete a two-stage doubling over 18 months in a bid to rein in a debt that is over twice the size of the economy, the heaviest in the industrial world.
Abe raised the tax in April to 8 percent from 5 percent and says he will decide on the next step based on his judgment of whether the economy is strong enough to withstand another blow.
In fact, the economy may already be shrinking. The Bank of Japan's tankan survey on Wednesday showed that while sentiment has ticked up for big manufacturers thanks to a weaker yen, service companies were markedly less confident, highlighting prolonged weakness in domestic demand..
This followed data on Tuesday showing an unexpected drop in factory output for August and a deeper drop than expected in household spending, the fifth decline in a row.
The economy shrank by an annualized 7.1 percent in April-June, more than twice as steep as in 1997, when then-premier Ryutaro Hashimoto raised the sales tax.
It is expected to claw back 3.6 percent in the July-September quarter, a Reuters poll forecast before the latest bleak data, a bigger bounce than 17 years ago but only because the drop was deeper this time.