The head of a Japanese business Lobby suggested the government proceeds with the expected tax hike in October since the Japanese population is aging rapidly. He also suggested a more flexible monetary policy.
Despite some concern that Japan should refrain from increasing taxes, the pressing fiscal and economic situation requires the land of the rising sun to take measures.
The global economic situation and a slowing Chinese economy are already affecting the Asian economies, particularly Japan, whose economy relies heavily on exports. However, some consider that the effect of the Chinese economic situation on the Japanese economy is minimal, as the Japanese economy is suffering due to a fall in the global demand for certain products, like smartphones.
“Economic uncertainties persist even now but I don’t think they will morph into a crisis on the scale of a Lehman shock, so I want (the hike) to proceed,” commented the head of the Japanese chamber of commerce and Industry, “With just a few months left before October, it’s impossible to delay it again," he added.
Such a measure would be controversial since it may hurt economic growth and lead to a recession. However, Japan needs fiscal reform in order to pay for increasing welfare costs, a result of an increasingly aging population. The Japanese public debt skyrocketed, being the biggest debt burden in the world, twice the size of its economy.
Many Japanese firms have been preparing for a tax increase from 8 to 10%, which would boost the domestic consumption right before the measure is taken.
“We are so prepared for this. You need to be ready in advance. It would be too late if you weren’t ready by now," said a Japanese businessman recently.
Japan is also facing president Donald Trump's threats to impose tariffs, as his government is aiming to close the trade gap between the United States and Japan. The market has been speculating about an upcoming trade deal on August, nevertheless, the Japanese government hasn't confirmed any meeting yet and denied any intention to reach a deal by then.
In the same way, if Trump increases tariffs over Chinese products that could affect Japanese exports, as they provide many electronic components and fabrication devices for Chinese laptops, apparel, and smartphones.