TOKYO • Japanese Prime Minister Shinzo Abe yesterday pledged to deliver "all possible steps" if risks to the economy intensify, signalling a fiscal-stimulus boost in the event that this month's sales tax hike triggers a sharp downturn in growth.
The government rolled out a twice-delayed increase in the sales tax from 8 per cent to 10 per cent on Tuesday, a move that is seen as critical for fixing the country's tattered finances.
But there are fears the higher tax could hurt consumer spending and tip the economy into recession.
This has led to speculation that Tokyo will step up fiscal spending - although it has already taken measures to mitigate the pain on consumption, mindful of the severe economic downturn that followed the last increase in the sales tax in 2014.
Mr Abe, in a speech at an extraordinary session of Parliament that convened yesterday, said: "Achieving economic growth remains my administration's top priority. If downside risks materialise, we will take all possible steps flexibly and without hesitation to ensure the economy is on a growth path."
Mr Abe's pledge to deliver support to the economy echoes that made recently by the central bank, which kept monetary policy steady last month but signalled its readiness to expand stimulus as early as later this month, when it holds its meeting from Oct 30 to Oct 31.
Japan's growth has slowed as the Sino-US trade war dealt a blow to its export-reliant economy, sending big manufacturers' sentiment - as measured by the Bank of Japan's tankan survey - to a six-year low in the July-September quarter.
For now, however, Finance Minister Taro Aso dismissed the need to boost stimulus to counter the tax hike impact, despite expectations that the government and the central bank may act to reduce pressure on the world's third-largest economy.
Speaking to reporters after a Cabinet meeting, Mr Aso said he saw no big confusion among retailers and shoppers over the tax hike as corporate earnings and household incomes were solid.
While United States-China trade frictions warranted attention, "we are not facing such a situation that stimulus should be taken immediately", Mr Aso said.
Market expectations of further Bank of Japan easing also grew after governor Haruhiko Kuroda pledged in July to act pre-emptively. Signs have also emerged recently that its nine-member board may be tilting towards further easing as global pressures intensify.
"We expect the Bank of Japan to maintain its ultra-loose monetary policy settings, and we would not rule out further easing measures if growth falters below their expectations," Fitch Ratings said in a statement issued yesterday.
"We would also not rule out additional fiscal stimulus, possibly from a supplementary budget early next year, to counter cyclical headwinds" it added.