Japanese Prime Minister (PM) Shinzo Abe insists a sales tax hike due next year will go ahead as planned, barring a Lehman-like external shock. Analysts, including Izumi Devalier at HSBC, seem less than convinced.
An increase in the tax, while crucial for paring Japan's bulging debt pile, risks imperiling a recovery that already appears to be stuttering amid tottering exports and the steepest decline in industrial output in half a decade, observers say.
"I think he's laying down the groundwork to convince opponents that delivering another consumption tax when domestic demand is still fragile risks pushing Japan back into deflation," Devalier, HSBC's Japan economist, told CNBC on Wednesday.
Earlier this month, Abe met with Noble prize-winning economists Joseph Stiglitz and Paul Krugman for their assessment of Japan's outlook and both of them urged Abe to postpone the hike and introduce more fiscal stimulus instead, Devalier pointed out, an opinion she shares as well.
The PM is using these meetings as a form of gai-atsu, or external pressure, to convince critics, namely the fiscal hawks within his ruling Liberal Democratic Party and technocrats at the Ministry of Finance, to delay the widely-opposed tax hike, Devalier said.