As further media leaks make the probability ofPrime Minister Shinzo Abe calling a snapelection next week look increasingly likely, thecatalyst for that election is coming into focus.The second increase of the consumption tax to10 percent next October is proving overwhelmingly unpopular among voters; yet markets,government officials, and analysts still have a mixed opinion on the topic. As Abe now looks torefortify his political base before making such a weighty economic decision, the consensus amongexperts is beginning to veer toward at least a delay, if not an outright abandonment of the next taxincrease.

A Reuters Corporate Survey of 250 companies concerning the sales tax found that 72 percentthink the Japanese economy could not withstand the increase. This is combined with a Reuters’poll of economists last week that found the average expectation for third quarter growth to onlybe 2.1 percent annually after a 7.1 percent drop the previous quarter, which is likely to be the mostimportant figure in Abe’s decision making process. The Corporate Survey also showed that “Onethird of companies said they want the government to put off the tax hike by up to a year, a quartercalled for a delay by a year-and-a-half or more and 10 percent want the idea scrapped.” However,news of the pending election and possible tax delay pushed Japan’s Nikkei Stock Exchange to aseven-year high on Wednesday.

Within the government there is still strong support for the tax increase, particularly from theBank of Japan’s Governor Haruhiko Kuroda, whose surprise October 31 announcement of furthermonetary easing was made in expectation of the hike. The head of the Fiscal System Council,Hiroshi Yoshikawa, also agreed this week that the consumption tax should go forward as planned,saying it should be considered “from a medium- to long-term perspective.” Yet a governmentpanel installed to consider the October increase was mixed to negative on the move. In an abruptshift from last week when five of eight supported the plan, this week’s panel shifted to four out ofnine calling to either postpone or cancel the increase, with two declining to comment and threesupporting the move.

It would appear that if Abe is looking for a way out of the tax increase, the corporate sector andstock market are in favor, with popular polling showing opposition to the hike for months. It isinfluential bureaucrats and members of his own party that the prime minister must still contend

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with, as the promises of fiscal responsibility combined with Abe’s bold economic initiative haveunderpinned most of the government’s policy the last two years. He is likely gambling that anelection will give him the power to return to this policy at a later date, yet it is unclear when thefinal tax increase might happen if it is indeed postponed.

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