Japanese Prime Minister Shinzo Abe.
Economists at JPMorgan Chase & Co. and UBS AG are among those expecting Abe to increase the levy by 2 percentage points to 10 percent next October, the survey conducted Oct. 31 to Nov. 5. shows. One forecast the prime minister to postpone for a year and another predicted an 18-month delay.
Abe is weighing the need to contain the world’s heaviest debt burden against the risk of derailing Japan’s recovery from two decades of stagnation. He will base his decision -- due by the end of the year -- on the health of the economy, which had its sharpest
contraction in more than five years after the levy was increased in April.
“A decision NOT to hike would be a major surprise,” said Robert Feldman, an economist at Morgan Stanley MUFG, citing the results of his own research.
Paul Krugman, a 2008 Nobel laureate in economics, last week urged Abe in a meeting in Tokyo to postpone any increase, citing concern it could hurt the economy, according to one of Abe’s aides, Etsuro Honda, who was present.
The impact of a delay would depend on whether Abe can find credible alternative measures to rein in the budget deficit, Feldman wrote in an e-mailed note.
“If so, then the impact of a decision to delay might not be adverse,” he said. “If not, then Japan could take one step closer to a loss of market confidence.”
Key Quarter
Abe has a neutral stance on the tax, Economy Minister Akira Amari said in parliament on Nov. 7. Amari said he couldn’t say what level of growth in the third quarter was necessary for a decision to go ahead with a hike.The economy grew an annualized 2.8 percent in the three months through September, according to the median estimate of economists surveyed by Bloomberg.
Gross domestic product shrank 7.1 percent in the second quarter, after the sales tax was increased by 3 percentage points, the first hike since 1997.
“The plan to increase the sales tax in October 2015 is a risky strategy given that consumption is already struggling,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney, who said in the survey he couldn’t predict the decision either way.
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