Japan Prime Minister Shinzo Abe plans large stimulus package this fall

Japan's Abe delays tax hike, announces stimulus package
Japan's Abe delays tax hike, announces stimulus package

Japan will delay its planned sales tax hike for a second time, Japan's Prime Minister Shinzo Abe announced Wednesday, while also detailing a new stimulus package for the economy this fall.

The decision to delay the tax increase by two and a half years was formally announced at a press conference Wednesday, although many analysts have long considered it to be a done deal.

The hike, originally planned for October, has already been delayed once and Abe may be moving for another postponement due to anemic economic growth and essentially non-existent inflation. Previously, Abe has said he would delay the 2017 sales tax hike only if there's a large natural disaster or a 2008-style crisis.

The delay means the law is now not due to come into force until October 2019 and Abe said Wednesday that he will seek a public mandate for the sales tax delay in the upper house of the Japanese parliament, according to Dow Jones.

Stimulus coming this fall

Japanese yen
Japanese data are improving…But Abe’s still likely to delay sales tax hike

At the press conference on Wednesday, the Japanese leader said the global economy was facing large risks and noted negative impacts from recent earthquakes in the country, according to Reuters.

He added that there was a risk that Japan could slide back into deflationary territory and promised to stimulate private demand and accelerate infrastructure projects. He said that so-called "Abenomics" had produced steady results and talked of the need to re-accelerate the program to boost tax revenues to achieve fiscal targets.

Abe iterated that the global economy needed to learn lessons from the "Lehman crisis" - a nod towards the financial crash of 2008 - and said all policy tools needed to be mobilized to support the global economy.

While the delay in the sales tax may help to support consumption, which took a bad hit from the last sales tax hike to 8 percent from 5 percent in April 2013, there are potential negatives to the move. The planned tax hike was to 10 percent.

The consumption tax hike was part of Abe's plan to pare the nation's bulging debt pile, currently exceeding 200 percent of gross domestic product (GDP).

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