TOKYO (Reuters) - Japan should press ahead with a planned sales tax hike in 2017 unless there is a major economic shock, as its economy appears to be stabilising after the market turbulence earlier this year, an adviser to Prime Minister Shinzo Abe said on Tuesday.
Masahiko Shibayama, Special Advisor to the Prime Minister, told Reuters also said that the government should roll out fiscal stimulus to offset any instability when raising the sales tax to 10 percent from the current 8 percent in April 2017.
The last sales tax hike to 8 percent from 5 percent in April 2014 hit consumers hard and triggered a recession, prompting Abe to delay a second tax hike to 10 percent by 18 months.
Speculation lingers that Abe may delay the planned tax hike further given the fragility of the Japanese economy.
“I don’t think Abenomics was a failure,” Shibayama said, referring to the premier’s policy mix of aggressive monetary, fiscal stimulus and reform plans.
“Even if there are unstable factors in the economy, the sales tax should rise as planned and then we should respond to instability by taking appropriate fiscal and other policy steps.”
Shibayama added that monetary policy could play an important role when raising the tax, raising the possibility of further monetary easing alongside any fiscal stimulus to cushion the blow.
A decision on the sales tax should be made following a debate at the Group of Seven advanced nations summit which Japan will host on May 26-27, Shibayama added.
He expressed a hope that G7 leaders will deliver a stronger message to spur global growth following the agreement by their finance chiefs last week to use a combination of monetary, fiscal and structural policies.
On currencies, Shibayama underscored Japan's desire to garner G7 leaders' support for stability in the foreign exchange market, after the yen hit an 18-month high against the dollar JPY= this month.
“It won’t be good for the currency to become highly volatile through excessive speculative moves. From that perspective, I expect that (the G7 leaders) may deliver some kind of message,” Shibayama said.
Reporting by Tetsushi Kajimoto; Editing by Simon Cameron-Moore