Abe Likely to Delay Tax Hike and Call Snap Elections

In late 2014, Japanese Prime Minister Shinzo Abe caught markets and voters off-guard when he postponed an unpopular sales tax hike and called a snap election. Less than two years later, the only surprise will be if he doesn’t repeat the play.

With consumption weak, wage growth limp and emerging economy slowdowns clouding Japan’s growth, economists bet Abe will again delay raising the tax to 10 percent from 8 percent. Currently due in April 2017, the hike is seen by fiscal conservatives as vital to rein in bulging public debt and social security costs.

Breaking an end-2014 promise not to delay the tax hike again would give Abe cause to call an election for parliament’s lower house to coincide with a July poll for the upper chamber. His ruling bloc already holds a super majority in the lower house.

Big wins in both houses for Abe’s center-right LDP and like-minded lawmakers would boost his chances of being able to start revising Japan’s pacifist constitution – a move long cherished by Abe and his conservative support base.

Eighteen out of 21 economists surveyed by Reuters expect Abe to delay the sales tax rise, and 15 expect a snap poll. “It appears that he (Abe) wants to avoid any impact on the election of a tax rise, achieve a long-term administration and boost the possibility of revising the constitution,” said Harumi Taguchi, principal economist at IHS Global Insight.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza